Steady but sure steps on voting disclosure
Transparency is a vital part of ensuring trust in financial services. Pension fund members, retail investors and civil society need to be confident that ownership responsibility is exercised effectively on their behalf. The government's enabling clauses for voting disclosure should therefore be welcomed. Those championing a voluntary approach now have a window of opportunity during the passage of the Company Law Reform Bill to demonstrate the progress that can be achieved without taking regulatory measures. And emerging international experience and the government's commitment to consultation give ample opportunity to ensure that any mandatory approach is effective and workable.
If the UK introduces mandatory voting disclosure, it will join an emerging worldwide trend. The US has more than two years of experience in implementing mandatory voting disclosure for mutual funds following an SEC rule introduced in 2003. Our American sister organisation reports increasingly strong retail investor interest and anecdotal evidence that costs of continued disclosure are proving to be low. Electronic voting services now offer automated support for disclosure and additional capabilities such as online search facilities. Almost all funds are releasing their voting record on their websites. Data volumes do not seem overwhelming. Early research studies of voting patterns on issues like climate change and political contributions demonstrate civil society interest.
While search capabilities could still be improved, it is already possible to see on the web how the holdings of big US mutual fund houses have been voted at the AGMs of UK listed companies.
When first proposed, the measure generated significant interest with the SEC reporting that the overwhelming majority of the 8,000 comments received were in support. Practical improvements resulted from the debate, with pension funds and socially responsible investment firms with a track record of voluntary disclosure providing detailed evidence to counter the fears of others.
The Canadian securities regulators recently introduced similar proxy voting disclosure requirements for mutual funds with reporting from summer 2006 about voting over the previous year.
Although some big pension funds voluntarily disclose their voting record, the UK clauses do break legislative ground in addressing the extension of mandatory voting disclosure to occupational pension funds. The UK led the world when it introduced a transparency regulation requiring pension funds to declare the degree to which, if at all, corporate responsibility issues were taken into account in their investment approaches. Many other countries have followed this lead. UKSIF has called for some time for government to complete the process by ensuring that pension fund members can see how these policies are implemented. The new clauses are an important step towards achieving this.
A debate for the UK is whether the government will need to move to mandatory disclosure or whether the enabling clauses will act as sufficient stimulus to ensure an effective voluntary solution.
Many would say that the UK has a positive history of voluntary initiatives with the recent update to the Institutional Shareholders Committee's Statement of Principles often cited as an example. Indeed, the Principles provide a sound foundation for disclosure as they require a clear audit trail of votes cast and their justification.
Others would highlight the level playing field offered by a mandatory minimum requirement and the appropriateness for voting records of a mandatory approach. They would point to the US experience where there is a requirement to disclose raw data but ample opportunity to provide voluntary leadership with additional facilities to turn this data into more useful information.
It is now important that momentum continues to be maintained. The DTI's explanatory notes make it clear that the clauses are the next step in a measured process dating back beyond the 2001 report of the Company Law review. It will remain prudent for the government to take enabling powers in the Company Law Reform Bill but we welcome their clear intention to stimulate voluntary progress and to achieve a workable regime for any mandatory approach, with detailed proposals subject to a regulatory impact assessment and extensive public consultation.
This will benefit from the developing North American experience. There is every reason to think that this positive experience will translate to the UK.
(Penny Shepherd MBE is chief executive of the UK Social Investment Forum or SIF. )
Under syndication arrangement with FE