Friday, 29 May 2009

UK: the FRC review of the Combined Code - ICSA's response

The Institute of Chartered Secretaries and Administrators has published its submission to the review of the Combined Code on Corporate Governance being conducted by the Financial Reporting Council

ICSA continues to support the current 'comply or explain' approach and the unitary board model. Changes to the Code are, however, recommended with regard to the time commitment of directors, the role of the company secretary and the manner in which risk is dealt with at board level. ICSA also recommends that the Code should contain a reference to the duties of directors (now) contained in the Companies Act (2006)

UK: going concern guidance for directors - FRC publishes exposure draft

The Financial Reporting Council has published Exposure Draft: Going Concern and Liquidity Risk - Guidance for Directors of UK Companies. In the press release accompanying publication the FRC explains:

The Draft will replace the existing guidance for directors of listed companies that was published in 1994. It is designed to be relevant to the directors of all sizes of UK companies including those that adopt the Financial Reporting Standard for Smaller Entities. The Draft incorporates the going concern material published in recent months in the FRC’s “Update for directors” and “Guidance for directors of smaller companies”. However, it will not replace that guidance until published in final form, taking account of the comments received".

Germany: executive pay - new legal rules

The Financial Times newspaper reports that new legal rules governing directors' remuneration are likely to be introduced in the next few months. In a report titled "Germany gets tough on executive pay", Bertrand Benoit writes:

German companies could have to cap executive pay under a bill agreed on Friday [today] by legislators in what is shaping up as the toughest crackdown in Europe against excessive boardroom compensation. The new, tougher-than-expected rules, which are almost certain to be enacted before the summer, would also allow supervisory boards to give shareholders a non-binding vote on executive pay packages at annual general meetings. The provisions are part of a broader package of measures that legislators on Friday said would add much-needed transparency to the traditionally opaque and secretive procedures that have long governed boardroom compensation at large German companies".

Germany's Corporate Governance Code Commission also met today to discuss changes to the Code. Information (in English) about the outcome of the meeting has not yet been published but see here for the issues under discussion. 

Thursday, 28 May 2009

Europe: the new financial supervisory framework

Yesterday the European Commission published a communication setting out its proposals for a new European financial supervisory framework. Central to the proposals is the creation of a European Systemic Risk Council (with responsibility for monitoring and assessing risks to the stability of the financial system) and a European System of Financial Supervisors (a network of national financial supervisors working alongside new European supervisory authorities). 

Legislation will be made in the autumn; meanwhile, comments are invited here and should be made by July 15. For further information see: Commission press release | Commission communication | Frequently asked questions | Impact assessment (summary) | Impact assessment (full text) | Further background information

Wednesday, 27 May 2009

UK: Companies Act (2006) implementation update

The Department for Business, Enterprise and Regulatory Reform has today updated its Companies Act (2006) what's new? web page to include information about recently published draft statutory instruments and Government responses to earlier consultations.

UK: FRC annual report and confidence in corporate governance

The Financial Reporting Council has published its 2008/09 annual report. As well as the usual update on developments the report refers to the results of a survey of 301 FRC stakeholders (including quoted company directors, auditors, investors, actuaries and pension scheme trustees). The report notes (to quote directly from it):

... the survey results indicated that levels of confidence in corporate governance, corporate reporting and auditing have reduced compared to last year, although not dramatically. The most significant change compared to the 2008 survey was the decrease in the proportion of respondents who were “very confident” rather than “fairly confident” in corporate governance and corporate reporting. Around half of those respondents reporting a decrease in confidence in corporate governance and corporate reporting cited problems in the financial sector as the reason".

Europe: Single Market News 54 published

Issue 54 of the European Commission's Single Market News has been published. It includes an overview of the Commission's recent proposals concerning directors' remuneration and alternative investment fund managers

UK: Companies House guidance booklets - May 2009 updates

Companies House has published revised editions, dated May 2009, of all of its guidance booklets.

UK: the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009

A revised draft of the Limited Liability Partnerships (Application of Companies Act 2006) Regulations 2009 was published yesterday on the OPSI website (see: html | pdf | explanatory memorandum), following a consultation by the Department for Business, Enterprise and Regulatory Reform which ended earlier this year. The regulations complete the application of the Companies Act (2006) to limited liability partnerships and are scheduled to come into force on 1 October 2009. 

Tuesday, 26 May 2009

Louis D. Brandeis: Other People's Money

The American Supreme Court judge Louis D. Brandeis, pictured, famously observed that "Sunlight is said to be the best of disinfectants; electric light the most efficient policeman". His words have been widely quoted in the UK within the past weeks against the background of the Daily Telegraph's disclosure of MPs' expense claims. It is, however, interesting to note that Brandeis' observations were made in the context of banking reform and were published in his 1914 book Other People's Money (having appeared earlier in Harper's Weekly). His book is well worth rereading; others make this point more forcefully than me (see, e.g., here). 

Away from banking and America, Brandeis' words were cited in the company law case Clark v Cutland [2003] EWCA Civ 810 by Lady Justice Arden. Her Ladyship provided the following explanation of the role of disclosure (para. [21]):

Disclosure is required for many purposes and it performs at least two valuable functions. It ensures that information is passed from the directors to the shareholders or from one director to another. It also acts as a deterrent against self-dealing. As Brandeis J ... said extrajudicially, "sunlight can be the best of disinfectants". Meaningless disclosure does not perform these functions and inadequate disclosure is often little better than no disclosure at all".

UK: the Companies (Shareholders’ Rights) Regulations 2009

A revised draft of the Companies (Shareholders’ Rights) Regulations 2009 has been published by BERR, following a consultation which ended in January. Comments are invited on the revised draft but respondents must be quick: the deadline is 29 May. The Regulations are scheduled to come into force on 3 August 2009 and will implement the Shareholder Rights Directive (2007/36/EC) by making changes to Part 13 (Resolutions and Meetings) of the Companies Act (2006).

Friday, 22 May 2009

New links added

A new category of links - "Earlier reviews of company law" - has been added. The reports included in this section, which date from 1918 and the Wrenbury Committee Report, make for interesting reading: they reveal, for example, the enduring nature of many issues and the growth of companies legislation. 

UK: choice in the audit market - FRC publishes third progress report

The Financial Reporting Council has published Choice in the Audit Market: Third Progress Report. The report provides an update on the FRC's implementation of the recommendations of the Market Participants Group (MPG) with regard to increasing choice in the audit market. The progress report notes:

The majority of the MPG’s recommendations have now been implemented and most of the outstanding recommendations, for example on a governance code for audit firms, will be implemented during the next six months. Further action at an international level is however required in order to implement Recommendation 13, 'Regulators should develop protocols for a more consistent response to audit firm issues based on their seriousness'. The FRC has initiated a discussion on oversight of the global audit networks with its counterparts in other major jurisdictions. The FRC will give an update on this in the next Progress Report, which is expected to be published in the autumn of 2009".

UK: the Banking Act 2009 (Commencement No 2) Order 2009

The Banking Act 2009 (Commencement No 2) Order 2009 was made on 20 May and has been published on the OPSI website. The Order brings into force Sections 238 to 243 of the Banking Act 2009 on 1 June 2009. These sections concern the governance of the Bank of England and its statutory objectives. They provide for the formation of a new Financial Stability Committee and amend the Bank of England Act 1998 to give the Bank of England a new statutory objective: to contribute to protecting and enhancing the stability of financial systems in the UK.

Thursday, 21 May 2009

UK: the Companies Act (2006) - draft statutory instruments published

The following draft statutory instruments have been published on the OPSI website: 

USA: a greater voice for shareholders - SEC proposals and a couple of bills

Yesterday the Securities and Exchange Commission announced significant proposals that will make it easier for (large) shareholders to nominate directors. The SEC chairman, Mary L. Schapiro, delivered a statement explaining the proposed changes (see text | video). Further information is available in this press release. For comment and discussion see here (Financial Times) and here (New York Times). 

A couple of corporate governance related bills have been introduced in the Senate. The likelihood of these becoming law is uncertain. The first, number S.1074, has the official title "A bill to provide shareholders with enhanced authority over the nomination, election, and compensation of public company executives". It was introduced on May 19 by Senator Charles Schumer and has already attracted a great deal of comment: see, e.g., here (Professor Bainbridge) and here (Wall Street Journal). The bill's provisions, which include providing shareholders with a 'say on pay', are more extensive than the SEC's proposals although there is an overlap with regard to director nomination. 

The second bill, number S.1006, has received much less attention. It was introduced on May 7 by Senator Richard Durbin and has the official title "A bill to require a supermajority shareholder vote to approve excessive compensation of any employee of a publicly-traded company".

Wednesday, 20 May 2009

USA: Supreme Court to consider the constitutionality of the Public Company Accounting Oversight Board

The Public Company Accounting Oversight Board was created by the Sarbanes-Oxley Act (2002) to oversee the auditors of public companies. The PCAOB's duties include registering public accounting firms; establishing auditing, quality control, ethics, independence and other standards relating to public company audits; conducting inspections, investigations and disciplinary proceedings of registered accounting firms; and enforcing compliance with the Sarbanes-Oxley Act (2002).

The constitutionality of the PCAOB was challenged last year in Free Enterprise Fund and Beckstead and Watts LLP v PCAOB et. al., No. 07-5127, 22 August 2008 before the Court of Appeals for the District of Columbia Circuit. It was argued that Sarbanes-Oxley (2002) violated the Appointments Clause of the Constitution and separation of powers because it did not permit adequate Presidential control of the PCAOB. By majority the court rejected these arguments. The case will, however, be heard by the Supreme Court: the Order List for May 18 records that leave to appeal has been granted. 

Tuesday, 19 May 2009

Royal Dutch Shell plc - say on pay

The Royal Dutch Shell plc annual general meeting was held today and, as many predicted, a majority of shareholder votes were cast against the remuneration report. The results were: for (1,295,183,971), against (1,896,170,360) and withheld (129,487,396). This result is widely covered by the newspapers: see here (Financial Times), here (Times), here (Guardian) and here (Telegraph). See here for the full voting results and further information about the AGM.


AMEC plc held its annual general meeting on May 13. The voting results are available here. Of interest are those concerning the remuneration report: for (97,695,912), against (83,625,790) and abstained (27,182,770). The remuneration report was approved - there being more votes cast for than against - but, as the figures reveal, a majority of shareholders failed to endorse it. For comment see this report from The Times newspaper, which describes shareholder disquiet over the pay of the company's chief executive. 

UK: banking regulation, the FSA and the auditor

Hector Sants, the chief executive of the Financial Services Authority, delivered a speech last week on the subject of banking regulation. Whilst he repeated many points he has already made regarding the FSA's scrutiny of directors, his following comments are worth quoting because they provide an insight into something that has not, so far, attracted much comment: the FSA's engagement with regulated firms' auditors. 

As part of our intensive supervision we have already instituted a programme of at least annual meetings with auditors of our high-impact firms. As part of these meetings we will be discussing accounting policies, and the processes through which they are implemented, in more detail with management and auditors, especially in areas where we perceive that the individual institution may be an outlier in terms of its valuation approach to specific instruments. From our discussions with auditors, we believe they will welcome this greater level of engagement with the FSA. We do of course acknowledge that a firm with an ‘outlier’ valuation may be able to convince us that it is, in fact, more compelling than the valuation applied by the majority.

In addition, in my view the audit profession within the UK should consider whether it would be appropriate to take further steps to strengthen the ability of the profession to identify instruments where there may be particular scope for divergence in valuations, and to share professional experience in determining whether particular valuations are consistent with the measurement requirements set out in accounting standards".

Monday, 18 May 2009

In pictures: a different kind of shareholder activism

This year has so far witnessed a very direct form of shareholder activism at annual general meetings across Europe.  Eggs, shoes and coins are amongst the objects thrown at company directors: see these photographs published on the Guardian website. The last photograph takes us back to the UK in 1995 when Cedric the pig, accompanied by officials from the GMB union, welcomed shareholders attending the British Gas AGM. 

UK: GSK plc seeks approval not to state name of senior statutory auditor

Section 503 of the Companies Act (2006) provides that the auditor's report must state the name of the auditor and be signed and dated. Where the auditor is an individual, he must sign the report; where the auditor is a firm, the senior statutory auditor must sign the report in his own name for and on behalf of the firm.
Section 506 provides that the name of the individual auditor or senior statutory auditor may be omitted from the report where publication would create, or be likely to create, the serious risk of the auditor being subjected to violence or intimidation. A shareholder resolution is required and notice of the resolution must be provided to the Secretary of State for BERR.  

The Manifest blog has reported that at this week's annual general meeting of GSK plc, shareholders will be asked to vote on a resolution to omit the senior statutory auditor's name from the audit report. The following explanation is provided in the AGM explanatory notes:

For many years, the company and its legacy companies, together with its employees, have been the focus of protests by various animal protection groups, some of which have engaged in aggressive, abusive and hostile acts. The Directors therefore believe that it is appropriate that the company should seek to utilise the confidentiality afforded to the senior statutory auditor of the company’s Auditors under the new legislation. This resolution therefore seeks shareholder approval for the Auditors’ reports for the financial year ending 31st December 2009 to omit the name of the senior statutory auditor. The company would give notice to the Secretary of State in the appropriate format if this resolution is passed".

According to Manifest, this may well be the first example of a listed company taking advantage of Section 506. 

Update (20 May 2009): the voting results are available here

Friday, 15 May 2009

UK: the Companies Act 2006 (Amendment of Schedule 2) (No. 2) Order 2009

The Companies Act 2006 (Amendment of Schedule 2) (No. 2) Order 2009 has been published today on the OPSI website. The Order comes into force on 1 July 2009. It amends Schedule 2 ("Specified persons, descriptions of disclosures etc for the purposes of section 948") of the Companies Act (2006) and also revokes the Companies Act 2006 (Amendment of Schedule 2) Order 2009 (although the provisions of this earlier Order are re-enacted by the new Order). The explanatory memorandum accompanying the new Order states:

From 1 July 2009 the Takeover Panel will have functions under the laws of Jersey and Guernsey in the same manner as those set out in Part 28 [of the Companies Act 2006]. This Order amends Schedule 2 to permit the disclosure of information in accordance with section 948 of the Companies Act 2006 to specified persons and for specified descriptions of disclosure in those jurisdictions to ensure a fully reciprocal application in the United Kingdom and those jurisdictions of the gateways for disclosure of material supplied to the Takeover Panel in connection with the exercise of its functions". 

UK: reforming corporate governance and pay in the City - Treasury Committee report

The House of Commons Treasury Committee has today published a further report as part of its examination of the banking crisis. This new report - available here (html) and here (pdf) - focuses on corporate governance and pay. The report is split into eight chapters: introduction, remuneration in the banking sector, remuneration in the part-nationalised banks, corporate governance, credit rating agencies, auditors, fair value accounting and the role of the media. It contains many recommendations. In the chapter on corporate governance, the Committee states, inter alia

We believe that there are a number of areas of reform which are worthy of further consideration. Firstly, whilst there may be a case for limiting the number of non-executive director or trusteeships that an individual can hold, we believe an alternative way forward would be to apply the ‘comply or explain’ approach where an individual who holds more than a certain number of posts would have to provide an explicit defence of how they will be to fulfil this role in addition to their other duties. Secondly, serious consideration should be given to whether all non-executives—or a proportion of non-executives—sitting on bank boards should be required to have professional qualifications relating to banking or other areas of relevance such as accountancy. Thirdly, we believe that there is a strong case for non-executive directors in the banking sector to have dedicated support or a secretariat to help them to carry out their responsibilities effectively. Finally, there is a need to examine ways in which the relationship between institutional investors and non-executive directors could be strengthened".

The report was discussed this morning on the BBC Radio 4 programme Today: listen here (see 0709, 0750 and 0835). For newspaper comment, which tends to focus on the actions of Lord Myners in connection with Sir Fred Goodwin's pension, see here, here and here

Thursday, 14 May 2009

SSRN creates corporate governance network

A new Corporate Governance Network has been created as part of the Social Sciences Research Network. The aim of the CGN is to "provide a worldwide, online community for research in all areas of corporate governance, following the model of other subject matter networks within SSRN". The CGN's founding director is Lucian A. Bebchuk, William J. Friedman and Alicia Townsend Friedman Professor of Law, Economics, and Finance, at Harvard Law School.

Note: there has been some reorganisation of the links on right of this page. A new section - academic groups and research networks - has been created. Further changes will take place soon to divide thematically the very long list of links. 

Wednesday, 13 May 2009

Australia: director and senior executive termination payments

A draft of the Corporations Amendment (Improving Accountability on Termination Payments) Bill 2009 has been published: see here. In the accompanying explanatory memorandum, the purpose of the Bill is set out as follows:

The current regulatory framework allows for termination benefits to reach up to seven times a director’s total annual remuneration package before shareholder approval is required. Additionally, only company directors’ termination benefits are subject to shareholder approval.

The Bill introduces a significantly lower threshold at which termination payments benefits must be approved by shareholders. Under the new arrangements, termination benefits for company directors and executives exceeding one year’s average base salary are subject to shareholder approval. In addition, the range of personnel whose termination benefits can be subject to shareholder approval is expanded from directors to also include senior executives and key management personnel. The Bill also clarifies the types of benefits that are subject to shareholder approval"

Australia: the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009

An exposure draft of the Corporations Legislation Amendment (Financial Services Modernisation) Bill 2009 has been published: see here (pdf) or here (rtf). A commentary is available here (pdf) and here (rtf). One of the purposes of the Bill is to introduce national regulation of trustee companies - those that provide personal trustee and estate administration services - for the first time in Australia's history. Further information is available in this press release. For background information about trustee companies see the green paper published by the Australian Treasury in 2008. 

Tuesday, 12 May 2009

UK: corporate governance statements

A revised draft of the Companies Act 2006 (Accounts, Reports and Audit) Regulations 2009 has been published today on the OPSI website. An explanatory memorandum is available here. The Regulations replace those published earlier this year and concern, inter alia, corporate governance statements which are not included as part of the directors' report (so-called separate corporate governance statements). They will amend Part 15 ("Accounts and Reports) and Part 16 ("Audit") of the Companies Act (2006) to require the filing of separate corporate governance statements with the registrar of companies. They also set out the auditor's obligations with regard to the statement. 

Monday, 11 May 2009

UK: Takeover Code - extending the disclosure regime consultation

The Takeover Panel has announced the publication of a consultation paper in which it sets out proposals for extending the Code’s disclosure regime. Comments are invited by 17 July.

Europe: Single Market News 53 published

Issue 53 of the European Commission's Single Market News has been published. Amongst its contents are overviews of recent financial reporting developments and the Commission's international auditing conference held last December.

Saturday, 9 May 2009

UK: regulation of the financial services industry - Government proposals due next month

A very quick post. In his response to the Financial Services Global Competitiveness Group report UK International Financial Services – the Future, the Chancellor noted that the Government's proposals for the reform of the UK's financial services industry would be published next month. The Group's report notes, inter alia, that "Strengthened banking regulation globally and improved corporate governance will be key to restoring public confidence".

Friday, 8 May 2009

UK: shareholders reject remuneration report at Provident Financial plc annual general meeting

At this week's annual general meeting of Providential Financial plc, the remuneration report was rejected. As indicated in the company's stock exchange announcement, a little over 51% of votes were cast against acceptance of the report. For further information see this report in the Financial Times newspaper and this article in the Times newspaper. Earlier this year a majority of votes were cast against the remuneration report at the Bellway plc annual general meeting: see here

Ireland: Manifest requisitions say on pay resolutions

In 2004 the European Commission recommended that listed company shareholders should be given an advisory vote in respect of company remuneration policy (see here). In 2007 the Commission reported that this recommendation had not been implemented in the majority of Member States. In Ireland shareholders have not been given a separate vote on company remuneration reports. However, Manifest - the proxy voting agency - has requisitioned 'say on pay' resolutions at five Irish listed companies: Bank of Ireland, DCC plc, Elan Corporation plcC & C Group plc and Independent News & Media plc. Further information is available on the Manifest blog here and in this report from the Irish Times

Thursday, 7 May 2009

USA: the Corporate Library launches blog

The Corporate Library has launched a blog: visit it hereNell Minow, founder of the Corporate Library, explains that the blog: 

... will be a place for lively conversation about the latest developments and the biggest controversies in corporate governance. I have often said that boards of directors are like sub-atomic particles -- they behave differently when they are observed. With this blog, we can observe, comment, and engage on everything from the latest scholarly research and the newest compensation metrics to upcoming Congressional hearings and pending SEC rulemakings".

UK: financial firms' governance - creating a culture of challenge

Hector Sants, the chief executive of the Financial Services Authority, delivered a speech today at the Securities and Investment Institute Conference 2009. He focused on the role of the FSA in assessing the competence of regulated firms' senior management. An overview of the speech is available here. Mr Sants' speech is wide-ranging but of particular interest are his comments on the functioning of financial firms' boards, the role of non-executive directors and their relationship with the FSA. Mr Sants observed:

We need ... to create a culture of challenge without creating conflict. We do not want to set up NEDs as a competing governance mechanism against the executive. It is more about making both much more effective. We therefore continue to support the ‘unitary board’ model, but it must be recognised that such a structure runs the risk of encouraging the herd instinct, both in the sense of encouraging ‘follow the leader’ behaviour and in the sense of the reluctance to ‘break away from the pack’ and express an independent view.

I should say that ensuring individuals have the necessary resolve to restrain over-bearing CEOs is undoubtedly a challenge, and I do believe here the regulators have a role in providing support and encouragement. I would expect a key component to be a greater direct communication between NEDs and the regulators. I would also say that the wider corporate community has to be willing to place a premium on such independence ...

... the structure of governance in financial companies does not need radical overhaul. The attitudes and competence of the individuals who conduct that governance does. In particular we need to create governance arrangements that foster challenge without creating conflict. The effectiveness of governance is the key issue and addressing this challenge is the responsibility of all of us, not just regulators and boards.

Interestingly, Mr Sants provided some information about the FSA's interviews of candidates for significant influence functions (SIF) within firms (part of the approved persons regime). Mr Sants stated:

The presumption is that any application submitted by a high-impact firm for the roles of chair, CEO, finance director or risk director will result in an interview. Other SIF candidates may also be interviewed at the supervisor’s discretion – for example, if there are concerns about the compliance culture of the firm or the track record of the candidate. In the first six months of the enhanced approval process, 51 SIF interviews were carried out. In a number of cases applications were or are being refused as the FSA was not satisfied the candidates had demonstrated fitness and propriety. We published a Consultation Paper (CP08/25) in December 2008 which outlines a number of proposed changes to significant influence controlled functions under the approved person regime. We expect to publish a further statement on these alongside Sir David Walker’s review on governance".

At the risk of making this a lengthy post, it is worth pointing out that the Combined Code makes clear what is expected of non-executive directors (supporting principles from section 1, A.1.):

As part of their role as members of a unitary board, non-executive directors should constructively challenge and help develop proposals on strategy. Non-executive directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. They should satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible".

UK: decisions of the Company Names Tribunal

The Company Names Tribunal was introduced by the Companies Act (2006) to deal with disputes concerning opportunistic company name registrations. It started work in October 2008. Section 69 of the 2006 Act sets out the the grounds on which an applicant can object to a company's registered name. One such ground is where a company's registered name is the same as a name associated with the applicant in which he has goodwill. A couple of Tribunal decisions have been published this week: see here. Thus far all applications have been successful. Information about the Tribunal's role is available here

Wednesday, 6 May 2009

UK: the Company and Business Names (Miscellaneous Provisions) Regulations 2009

The Company and Business Names (Miscellaneous Provisions) Regulations 2009 were laid before Parliament on 28 April 2009 and come into force on 1 October 2009. The Regulations have been published on OPSI: see here (html) and here (pdf). The accompanying explanatory memorandum is available here (pdf). The Regulations set out certain requirements and prohibitions with regard to the names of companies registered under the Companies Act (2006). They prescribe, for example, those characters, signs, symbols and punctuation which can be used. 

UK: England and Wales: the exercise of directors' powers

Judgment was given today in Ford v Polymer Vision Ltd [2009] EWHC 945 (Ch). There were several issues before the court, in an application for summary judgment, including directors' authority and the operation of Section 40 of the Companies Act (2006). The trial judge also considered the power of the directors to grant an option, capable of exercise within a ten year period starting on 3 February 2009, whereby an individual - Mr Ford - was entitled to purchase all of the assets and undertakings of a company - PVL - for a sum equal to the company's "actual liabilities and indebtedness". The trial judge observed (paras. [87] - [89]):

It is well established ... that whether the directors of a company have exercised their powers properly or improperly is not to be determined simply by what the directors genuinely believed, so that if they genuinely thought that the company's best interests were served by the transaction and they were not motivated to any degree by personal considerations that is an end of the enquiry. The power in question - in the instant case a contract to dispose of PVL's assets - has to be exercised for the purpose for which it was conferred.

There are three noteworthy features of the Option Agreement. The first is that it involves a commitment by PVL, if the option is exercised, to dispose of the whole of its assets and undertaking to Mr Ford. The second is that the price payable on exercise of the option is not related to any assessment of the value of the assets and undertaking; instead, it is limited to the amount of PVL's liabilities at the time of exercise of the option. The third is that the option is granted for a period of ten years so that PVL's position might have changed radically and for the better by the time that Mr Ford should choose to exercise the option.

I consider that it is at the very least arguable that committing PVL to the disposal of all of its assets and undertaking on such terms was an improper exercise by the directors of their powers ... At all events, I would need rather more evidence of PVL's circumstances and what its assets and undertaking were realistically worth and why it was thought right to confine the option price simply to PVL's liabilities and grant the option for so lengthy a period before coming to any conclusion on the propriety of the action of [the directors] in resolving to commit PVL to such a transaction".

Europe: executive pay, remuneration reports and shareholder voting

The UK's Financial Times newspaper reports that "[the] shareholder voting season across Europe is just getting into full swing but already the militancy of investors is noticeable in the wake of the financial crisis". The report notes:

Xstrata suffered a stinging protest by shareholders over its pay policies on Tuesday as more than a third of votes cast on its remuneration report at its annual meeting failed to back it. BP experienced a similar protest vote against its remuneration plan last month and pay is expected to be a contentious issue at Shell’s annual meeting this month ... 

Europe in recent months has seen revolts in the Netherlands (Heineken, ASML, KPN) and Sweden (Volvo, Nordea) ...

In the UK, the proportion of votes against remuneration reports at the likes of BP, Pearson and Xstrata have reached record levels. Most remuneration reports are traditionally nodded through with more than 90 per cent of votes cast in favour. But Xstrata won just 64.4 per cent of shareholders’ support yesterday. Last month, BP got 62 per cent in favour of its report. Pearson, owner of the Financial Times, secured 67.5 per cent ... 

Smith & Nephew, which suffered the biggest FTSE 100 protest vote last year, still saw 37 per cent of investors fail to back the remuneration report at this year’s meeting last week. The next test for investors’ resolve will be at Rexam, the packaging group, tomorrow, with the big showdown set for May 19, at the Shell AGM".

the hypertext links in the above quotation will take you to the AGM and voting information for each company. 

Monday, 4 May 2009

USA: the Shareholder Bill of Rights Act + Bank of America annual meeting

Senator Charles Schumer is planning to introduce a Shareholder Bill of Rights Act, the purpose of which is to give public company shareholders greater voice. An annual "say on pay" vote is proposed as is the annual election of directors. The requirement for separation of the roles of chairman and chief executive is also included in the Bill, an arrangement that shareholders in Bank of America narrowly - and surprisingly - secured last week at the bank's annual meeting: see here and here. A webcast of the meeting is available here. According to a recent report in the Financial Times newspaper, 61% of companies in the S&P 500 index combine the roles of chairman and chief executive.

Friday, 1 May 2009

UK: publication of the Finance Bill 2009 - the duties of senior accounting officers

The Finance Bill 2009 was published yesterday. A copy in PDF is available on the Parliament website here. Explanatory notes have been published here by HM Treasury. The Bill provides further information about the new duty that will be imposed on the senior accounting officer of large companies with regard to taxation accounting. The duty is contained in Schedule 46 of the Bill, where senior accounting officer is defined as "the director or officer of the company who has overall responsibility for the company's financial accounting arrangements". This person's main duty is set out as follows:

1 (1) The senior accounting officer of a large company must take reasonable steps to ensure that the company and each of its subsidiaries (if any) establishes and maintains appropriate tax accounting arrangements.

1 (2) The senior accounting officer of a large company must, in particular, take reasonable steps -

(a) to monitor the accounting arrangements of the company and its subsidiaries (if any), and
(b) to identify any respects in which those arrangements are not appropriate tax accounting arrangements".

Failure to meet this duty will result in a penalty of £ 5,000. The senior accounting officer will also be required to provide a certificate to HMRC stating whether the company has appropriate tax accounting arrangements in place. If arrangements are not in place, an explanation must be provided to HMRC and the company's auditor. Appropriate tax accounting arrangements are defined as "accounting arrangements that enable the liability to taxes and duties of the company and its subsidiaries (if any) to be calculated accurately".

Schedule 46 also provides that liability will not arise if the senior accounting officer satisfies HMRC or, on appeal, a Tribunal, that there was a reasonable excuse for the failure. It is explained that an insufficiency of funds will not be a reasonable excuse unless attributable to events outside of the officer's control. It is also explained that reliance on another will not be a reasonable excuse unless the officer took reasonable care to avoid the failure.