(a) make regulations under section 416(4) of the Companies Act 2006 (c. 46) requiring the directors’ report of a company to contain such information as may be specified in the regulations about emissions of greenhouse gases from activities for which the company is responsible,(1) The Secretary of State must, not later than 6th April 2012—
(b) lay before Parliament a report explaining why no such regulations have been made.
(2) Subsection (1)(a) is complied with if regulations are made containing provision in relation to companies, and emissions, of a description specified in the regulations.
Friday, 28 November 2008
- GBA4: Auditors (version 17) - PDF and HTML. This booklet explains the role of the auditor and the circumstances in which an auditor need not be appointed.
- GBA10: Dormant companies (version 17) - PDF and HTML. This booklet explains the obligations imposed on dormant companies if they are to remain on the Register at Companies House.
The study found that information about going concern and liquidity risk was included in many different places in the annual reports reviewed. This made it difficult to develop a coherent and comprehensive picture of how liquidity concerns were relevant to the businesses. Disclosures were sometimes to be found in the chairman’s statement, chief executive’s report, Directors’ Report as well as in the notes to the accounts.
The study concluded that it would be particularly helpful if all of these disclosures could be brought together into a single section of a company’s annual report and accounts as this would facilitate a better understanding. If this is not practical, it would be helpful if the key disclosures are brought together by way of a note including cross references to other disclosures to help readers of financial statements find all of the relevant pieces of information.
Current economic conditions provide particular challenges to all involved with annual reports and accounts. The purpose of this document is to assist audit committees by identifying key questions that that they may need to consider when preparing for the year end and in carrying out their role in relation to annual financial statements. It does not establish any new requirements".
...brings together the requirements on directors to comment on going concern and liquidity risk in annual reports and accounts, in the light of the significant economic difficulties that were being experienced in the latter half of 2008. The update addresses the requirements of International Financial Reporting Standards, UK Generally Accepted Accounting Principles, the Listing rules of the Financial Services Authority, the 1994 Guidance for directors, The Companies Act 2006 and its requirements about the content of a Business Review in relation to December 2008 year ends. The update may also be useful for directors of unlisted companies".
Thursday, 27 November 2008
Wednesday, 26 November 2008
Tuesday, 25 November 2008
New Labour orthodoxy ... has made the government rightly suspicious of ministerial entanglement in markets. We learnt from past experience the perils of Ministers substituting their judgement for company boards. Getting too involved in market decisions, we believe, will tend to lead to worse decisions. And in 1997, quite honestly, when we came to office, governing was easier then, in simpler economic conditions than we know now. Put in place stability, as we did, strengthen the supply side and the rest will look after itself. And actually, in the main, it did. It's a good time to reflect further. Not because we want the government micromanaging our economy, but because we need to rethink the frameworks that government puts in place within which the private sector is then free to take its decisions. I intend to say more about this in a lecture in a few week's time".
Monday, 24 November 2008
- The FSA and BERR to consult on reducing the rights issue subscription period from 21 to 14 days.
- BERR to take forward the practical transposition of the Shareholder Rights Directive to maintain the option of a 14 day notice period for companies’ general meetings.
- The Association of British Insurers (ABI) to review its guidance on the ceiling on allotments in light of the Group’s recommendation that it be increased from one-third to two-thirds of an issuer’s issued share capital.
- The FSA to continue to maintain oversight of the conflict of interest regimes with a view to reinforcing transparency between issuers and underwriters.
- The FSA to facilitate the development by market participants of non-prescriptive guidance on the issues that an issuer could usefully consider when embarking on a capital raising by way of a rights issue.
- The FSA to take forward consultation on a new form of open offer which will provide compensation and which may be run over a 14 day period in conjunction with a general meeting notice period.
- Working at the EU level for the adoption of a short form prospectus for rights issues.
- The possible increased use of shelf registration for equity issuance.
- The FSA to consider further a basis for conditional dealing in rights issues to allow the general meeting notice period and the rights issue subscription period to be run in parallel.
- The FSA to undertake further informal discussions on the usefulness of progressing with further work to introduce more accelerated rights issue models including for this purpose the Australian RAPIDS [Renounceable Accelerated Pro-rata Issue with Dual-bookbuild] model.
- The FSA market consultation on a more permanent position on short selling in rights issues.
The Government subsequently announced that legislation would be introduced to remove the tax benefits of "income shifting" (sometimes called "income splitting") and a consultation paper was published at the end of last year. In the March 2008 budget, the Government announced that legislation would be brought forward in the Finance Act 2009 (see paragraph 4.69 of the budget report). However, in today's Pre-Budget Report, the Government has announced (para 5.103):
...it is unfair to allow a minority of individuals to benefit financially from shifting part of their income to someone else who is subject to a lower rate of tax, known as income shifting. The Government has consulted on this issue but, given the current economic challenges, the Government is deferring action and will not bring forward legislation at Finance Bill 2009. The Government will instead keep this issue under review".
- There was an increase in women CEOs to five in the FTSE 100, with an additional three more divisional or regional CEO posts held by women, an all-time high. There are now two female Chairman of FTSE 100 companies. The total number of female executive directors is 17.
- The number of female directorships -131 - held by women on FTSE 100 boards is currently up to 11.7% of the total. In 1999 there were only 79 female directorships, 6.9% of the total.
- Both market capitalisation and board size are significantly and consistently higher for companies with female directors when compared with those of all-male boards.
- Female directors are three years younger than their male counterparts on FTSE 100 boards, with an average age of 53.9 years. The female directors also had significantly shorter tenure.
- There are still 22 companies in the FTSE 100 that have exclusively all-male boards.
- Ethnic minorities are still underrepresented among the female FTSE 100 directors.
- Of the 149 new appointees to the FTSE 100, only 16, a mere 10.7% were women.
Friday, 21 November 2008
- He owes the same duties to the company as any other director.
- He owes his duties as a director to the company alone.
- The company is entitled to expect from the director his best independent judgment.
- These duties can be qualified in the case of a nominee director just as they can be qualified in the case of any other director. In particular, such duties (except perhaps for certain core duties) can be qualified by the unanimous assent of the shareholders.
- It is doubtful whether, as a matter of English law, it is possible to release a director from his general duty to act in the best interests of the company.
- Even if it is possible to do so, it would require strong evidence to demonstrate that that had been done, ideally an express written agreement signed by all of the shareholders. The onus must lie on those saying that the general rule has been attenuated or, to use another word, relaxed, as a result of unanimous shareholder approval to demonstrate that such approval has been given. And, I must add, they must show the extent to which the general rule has been relaxed.
- However, I see no reason in principle why in relation to specific areas of interest, a director should not be released from his fiduciary duty to give his best independent judgment to the company. In particular, if a director is charged with negotiating on behalf of his appointor an agreement with the company where the interests of his appointor and the company are opposed, the shareholders can unanimously agree that he may conduct such negotiation without regard to the interests of the company. But if that were to be done, it might be expected that the director concerned would, by the same agreement, be precluded from discussions of the board relating to the negotiations and certainly from voting on the issue.
Thursday, 20 November 2008
For further information see:
Wednesday, 19 November 2008
UK: England and Wales: disqualification of directors - a successful appeal against length of disqualification period
It is obviously important that the disqualifications imposed for these serious breaches of the law reflect the gravity of the criminality. Equally, however, in our judgment it is appropriate to recognise the appellants' acceptance of the position, the sensible abandonment of the applications to appeal against conviction [for being involved in the management of a company whilst undischarged bankrupts], and the way in which the appellants now present themselves to this court.
It would be wrong to impose a disqualification which did not extend beyond the present undertakings. In the circumstances we are prepared to make limited reductions to the orders made without in any sense criticising the decisions of the learned judge in relation to either".
Tuesday, 18 November 2008
Europe: Commission consultation on control structures in audit firms and their consequences on the audit market
- modifying Article 3(4) of the Statutory Audit Directive 2006/43/EC, in order to deregulate the rules on audit firms' capital structure and ownership.
- focusing on wider barriers including reputation, quality and expertise of staff and low client switching rates.
We all need to think of how to bring new capital into the audit profession. Some have suggested that we should do away with ownership restrictions in audit firms and allow other players – not only audit partners – to invest in an audit firm. Audit firms fear that such relaxation could reduce the quality of audits and pose a risk to auditor independence. I want to hear more about both sides of the argument. I encourage all those who have a view or experience in this field to share it with us."
Monday, 17 November 2008
- Regulators should develop enhanced guidance to strengthen banks' risk management practices, in line with international best practices, and should encourage financial firms to reexamine their internal controls and implement strengthened policies for sound risk management.
- Supervisors should collaborate to establish supervisory colleges for all major cross-border financial institutions, as part of efforts to strengthen the surveillance of cross-border firms. Major global banks should meet regularly with their supervisory college for comprehensive discussions of the firm's activities and assessment of the risks it faces.
- The IMF, expanded FSF, and other regulators and bodies should develop recommendations to mitigate pro-cyclicality, including the review of how valuation and leverage, bank capital, executive compensation, and provisioning practices may exacerbate cyclical trends.
- Regulators should take steps to ensure that credit rating agencies meet the highest standards of the international organization of securities regulators and that they avoid conflicts of interest, provide greater disclosure to investors and to issuers, and differentiate ratings for complex products.
- The international organization of securities regulators should review credit rating agencies' adoption of the standards and mechanisms for monitoring compliance.
- The key global accounting standards bodies should work intensively toward the objective of creating a single high-quality global standard.
- Regulators, supervisors, and accounting standard setters, as appropriate, should work with each other and the private sector on an ongoing basis to ensure consistent application and enforcement of high-quality accounting standards.
Sunday, 16 November 2008
A Director or other officer of a Company, in exercising his powers and discharging his duties, shall:(a) act honestly, in good faith and lawfully, with a view to the best interests of the Company; and
(b) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances".
Saturday, 15 November 2008
Friday, 14 November 2008
- to ensure that credit rating agencies avoid conflicts of interest in the rating process or at least manage them adequately;
- to improve the quality of the methodologies used by credit rating agencies and the quality of ratings;
- to increase transparency by setting disclosure obligations for credit rating agencies;
- to ensure an efficient registration and surveillance framework, avoiding ‘forum shopping’ and regulatory arbitrage between EU jurisdictions.
The administrative or supervisory board of a credit rating agency shall include at least three non-executive members who shall be are independent. The remuneration of the independent members of administrative or supervisory board shall not be linked to the business performance of the credit rating agency and shall be arranged so as to ensure the independence of their judgement. The term of office of the independent members of the administrative or supervisory board shall be for a pre-agreed fixed period not exceeding five years and shall not be renewable. The dismissal of independent members of the administrative or supervisory board shall only take place in case of misconduct or professional underperformance.
The majority of members of the administrative or supervisory board, including all independent members, shall have sufficient expertise in financial services. At least one independent member of this board should have in-depth knowledge and experience at a senior level of the structured credit and securitisation markets".
Thursday, 13 November 2008
Wednesday, 12 November 2008
The faces around Canada's board tables are changing as top-tier companies become more willing to add new directors to their ranks who have never held corporate board seats, new research by consultancy Spencer Stuart shows. Spencer Stuart reviewed the profiles of all new directors who joined the boards of 100 of Canada's largest companies over the past eight years. A total of 619 new board positions were filled in the period. One of the greatest shifts during the period was in the willingness of boards to appoint so-called "first-timers" - defined as directors who have not previously sat on the board of a significant public company.
Between 2001 and 2004, 16 per cent of new directors were first-timers on a corporate board, the Spencer Stuart research shows, climbing to 21 per cent in the period from 2005 to 2008. In 2008 alone, 23 per cent of newcomers were first-time directors.The inclusion of more women on boards is also one of the factors driving the growing number of first-timers, the survey found. Between 2006 and 2008, women accounted for 21 per cent of new directors added to top-100 company boards. From 2002 to 2005, in contrast, about 14 per cent of new directors were women. In 2008 alone, 26 per cent of newly appointed directors were women, the survey found".
Tuesday, 11 November 2008
Updated FAQs with regard to trading disclosures have been published by the DBERR here and an explanatory memorandum for the Regulations has been published (see here, in PDF).
Monday, 10 November 2008
Friday, 7 November 2008
For background information concerning the application of the Companies Act (2006) to LLPs, see here.
Thursday, 6 November 2008
Europe: Commission adoption of consolidated text of international accounting standards applicable in the EU
Wednesday, 5 November 2008
Australia: the director's duty to act in the best interests of the company and the meaning of corporate governance
With regard to the duty to act in the best interests of the company, Owen J. observed (paras 4,395 - 4,396) :
It is ... incorrect to read the phrases 'acting in the best interests of the company' and 'acting in the best interests of the shareholders' as if they meant exactly the same thing. To do so is to misconceive the true nature of the fiduciary relationship between a director and the company. And it ignores the range of other interests that might (again, depending on the circumstances of the company and the nature of the power to be exercised) legitimately be considered. On the other hand, it is almost axiomatic to say that that the content of the duty may (and usually will) include a consideration of the interests of shareholders. But it does not follow that in determining the content of the duty to act in the interests of the company, the concerns of shareholders are the only ones to which attention need be directed or that the legitimate interests of other groups can safely be ignored".
In my view ... when a company is in an insolvency context, the directors must 'take into account' the interests of creditors. It does not necessarily follow from this that the interests of creditors are determinative. When directors are deciding what is in the best interests of the company one of the things that they must consider is the interests of creditors. But it would be going too far to state, as a general and all-embracing principle, that when a company is in straitened financial circumstances, the directors must act in the interests of creditors, or they must treat the creditors' interests as paramount, to the exclusion of other interests. To do so would come perilously close to substituting for the duty to act in the interests of the company, a duty to act in the interests of creditors".
With regard to corporate governance, Owen J. observed (extracts taken from paras. 4362 - 4,367):
There are no hard and fast rules that constitute 'corporate governance'. But there are some basic underlying principles that help to explain the guidelines and legal principles that have developed over time and now dictate how a director is expected to carry out her or his responsibilities.
One of the 'in' phrases in modern commercial life is corporate governance. At the risk of appearing thrasonical, it will be convenient to repeat some of what I said about corporate governance in The Failure of HIH Insurance, Report of the Royal Commission, (2003), Ch 6. At its broadest, the governance of corporate entities comprehends the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations. It includes the practices by which that exercise and control of authority is in fact effected.
There are various organs that influence the decision-making processes of a corporation and which are involved in corporate governance. But primary governance responsibility lies with the board of directors. In formal terms the directors are appointed by, and are accountable to, the body of shareholders ... The power to manage the business of the company has been delegated to the directors. The delegation arises as part of, or by virtue of, the contract between the shareholders and the company represented by the Articles of association.
With the power to manage a business comes (necessarily) an element of control over the assets that are employed in the operation. When a corporation that conducts a business acquires assets, those assets belong to it. They do not belong to those (such as directors) who manage the corporation. Yet the individuals who manage the corporation have effective control over those assets and can affect the interests of the corporation by the way in which they use the assets. The individuals who manage the corporation are, in a real sense, stewards of those assets on behalf of the corporation and, in an indirect sense, other persons or entities (such as shareholders) who have a legitimate interest in the affairs of the corporation.
In my view the notion of stewardship is a key factor in understanding the role of directors. This is borne out by what was said in the Cadbury Report, produced by a specialist corporate committee in the United Kingdom during the early 1990s. It emphasised the trinity of 'openness, integrity and accountability' as prerequisites for sound financial reporting. In my view, those principles are not confined to financial reporting. They apply to corporate governance generally and, consequently, to the role of directors".
For a comparison between the new Code and its predecessor, see here. Further background information is available in the Board's annual report for 2008, available here.
Such an extension of the Code requires it to be adapted to the circumstances of smaller listed companies. The Board has therefore reviewed the Code with the aim of shortening and simplifying it as much as possible without relaxing the criteria for good corporate governance in Swedish listed companies. The Board has also focused on eliminating weaknesses that have come to light in the application of the Code so far and on preparing the Code for continued discussions on harmonising corporate governance norms in the Nordic countries. The revised Code is a result of this review".
UK: ICAEW Technical Release 06/08: directors' duties and responsibilities regarding financial and accounting matters
This statement was issued in October 2008 by the Institute of Chartered Accountants in England and Wales, principally concerning the main duties and responsibilities of a financial or accounting nature owed by directors to their company and its shareholders and others, but also including an overview of more general duties and responsibilities. It sets out, where appropriate, what is considered to be good practice rather than what may be acceptable as the legal minimum required. It is hoped that the statement will be useful to members acting as directors and to members generally in conveying to directors the extent of these responsibilities. It is stressed, however, that the statement is not intended to cover other aspects, however important, of a director’s position".
English counsel have confirmed that this statement is consistent with the English law as at 1 October 2008 had the 2006 Act been fully implemented as at that date".
Tuesday, 4 November 2008
The consultation paper asks twenty questions including:
- Which stakeholders should the Code primarily serve?
- What approach should the Code adopt to risk management and internal control?
- Should the Code support the appointment of independent non-executives by the firms? If so, what should it say with regard to the number or proportion of non-executives and their position, role and responsibilities in a firm’s governance structure?
The Code is intended to assist insolvency practitioners meet the obligations expected of them by providing professional and ethical guidance. The purpose of the Code is to provide a high standard of professional and ethical guidance amongst insolvency practitioners".
For further information see the background information published by the IPA.
... in Japan, there is no common code of conduct in the business community with regard to what constitutes a non-abusive takeover and what constitutes a reasonable defensive measure, partly because Japan has had less experience with hostile takeovers unlike the United States and EU. Defensive measures against hostile takeovers, if they are used properly, can help enhance corporate value and shareholders’ common interests. But at the same time, there is a risk that defensive measures, if they are improperly structured, may be used to entrench corporate management, preserving intact inefficient management. Therefore, if left as is, this absence of rules could encourage repeated surprise attacks and excessive defensive tactics, making it difficult for takeovers to fully demonstrate their effectiveness as a mechanism to enhance corporate value. The purpose of the Guidelines is to promote the establishment of fair rules concerning takeovers by proposing legitimate, reasonable takeover defense measures".
Monday, 3 November 2008
Sunday, 2 November 2008
... pay levels in private sector companies are a matter for those companies. The Government have consistently made it clear that there should be effective linkage between pay and performance and that exceptional rewards for mediocre performance are not in the interests of companies, their shareholders or the United Kingdom as a whole.... On the more general issue of companies, from 6 April next year, a new provision will require quoted companies to report in their directors’ remuneration report on how they have taken pay and employment conditions into account when setting directors’ pay. Directors’ pay should be set only by non-executive directors, not by those who benefit from it themselves".
Statement of consideration of conditions elsewhere in company and group
The directors’ remuneration report must contain a statement of how pay and employment conditions of employees of the company and of other undertakings within the same group as the company were taken into account when determining directors’ remuneration for the relevant financial year".
In relation to monetary policy, the objectives of the Bank of England shall be—
(a) to maintain price stability, and
(b) subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment".