Coming so late in the life of the current parliamentary term, the City may be forgiven for already turning attention from yesterday's budget statement to post-election budgetary announcements for substantive financial and fiscal policy developments. However, hidden in the text of yesterday's Budget Report is a potentially highly significant statement, which could make voting disclosure a mandatory requirement.

A single paragraph makes passing reference to the Walker Review, the FRC's revision of the Combined Code and proposals for a Stewardship Code. However it also mentions that "the Government will also consider whether the existing institutional investor voting disclosure regime should become mandatory as provided for in section 1277 of the Companies Act 2006".

Whilst this was a feature of some respondents to the 2009 Consultation on the Effectiveness of the Combined Code, this is a potentially new development; the Government considering the use of powers set out in Sections 1277-1280 of the Companies Act.

What are these powers, if made mandatory? In summary, the Act allows for disclosure of information about:
- the exercise or non-exercise of voting rights;
- instructions given as to the exercise or non-exercise of voting rights by the instuitution responsible;
- the delegation of any function of the exercise of voting rights or the giving of such instructions; and
- where instructions are to follow certain recommendations, what recommendations were given

Such disclosure, however, may be deemed to be met even when only in aggregated form if an institution is acting on behalf of more than one shareholder, should the Government choose to allow. That may not allow for the desired transparency.

Much ink has been spilled about the unintended consequences of the box-ticking response to vote reporting and voting in general provoked by similar laws in the US and France; suffice to say that there is certainly room for discretion on the part of the UK Government in choosing how to apply these rules and to what extent. Whether such room for discretion is sufficient to avoid box-ticking is, it would seem, a question of the highest importance and, potentially, urgency.

If there is anything less desirable than the image of shareholders asleep at the wheel, it's possibly one of shareholders appointing a chauffeur instead whose interests as to the end destination and the route for arriving there are dangerously different to those of his unquestioning passengers. The essence of Stewardship is being in control of the fiduciary responsibilities for which one is responsible; these cannot be delegated and any regulatory intervention must ensure that this essence is not overlooked. The risks of not getting this right are simply not paletable.

Budget Report

Companies Act 2006