USA: SEC consults on amendments to shareholder proposal rule

Rather belatedly I note proposals by the SEC, published earlier this month, to amend the process whereby shareholder proposals are included in a company's proxy statement: see here. The proposed changes would be significant if made and that is one of the reasons why there has been a call for the SEC to extend the period for comment (see, e.g., the letter sent by the Council of Institutional Investors: here, pdf).

UK: Principles for Purposeful Business

In 2017 the British Academy began a research project titled The Future of the Corporation. As part of this project, a report was published today setting out 'Principles for Purposeful Business'. A copy of the report is available here (pdf) and an executive summary is available here (pdf).

There are, in fact, eight principles intended for policymakers and business leaders. The first, for example, states that corporate law should "place purpose at the heart of the corporation and require directors to state their purposes and demonstrate commitment to them". The fourth states that "[c]orporate governance should align managerial interests with companies' purposes and establish accountability to a range of stakeholders through appropriate board structures".

OECD report: the owners of the world's listed companies

The OECD has published a report titled Owners of the World's Listed Companies: see here (pdf). The report is based on ownership information for the 10,000 largest listed companies, comprising 90% of global market capitalisation.  A summary of the report's findings is available in the below presentation:

UK: IoD publishes corporate governance manifesto

With the UK general election underway, the Institute of Directors has published a manifesto for corporate governance: see here (pdf). Amongst other things, the IoD calls for the establishment of an independent corporate governance commission, with oversight of the UK corporate governance and stewardships codes, and separate from the organisation - the Audit, Reporting and Governance Authority - that is to replace the Financial Reporting Council.

UK: England and Wales: the extent of the duties owed by shadow directors

Mr Justice Trower delivered judgment earlier this week in Standish v The Royal Bank of Scotland Plc [2019] EWHC 3116 (Ch). The decision is noteworthy because of the discussion it contains concerning the application of section 170(5) of the Companies Act 2006, which provides that the "general duties [in sections 171 to 177 of the Act] apply to a shadow director of a company where and to the extent that they are capable of so applying". Mr Justice Trower stated (paras. [55] to [57]): 

It is therefore quite clear that section 170 of the 2006 Act cannot be read as imposing the full range of fiduciary duties owed by a de jure director on somebody merely because they have acquired the status of a shadow director. Put another way, because the status of shadow directorship can be acquired through the giving of instructions that are limited to only some part of a company's activities or affairs, there can be commensurable limitations on the nature and extent of the duties that they will thereby owe.

It also follows that the extent of any fiduciary duty owed by a person who is in the position of being a shadow director will reflect the extent and nature of the instructions that he gives. Those acts of instruction are the basis of the relationship between him and the company (and its de jure directors). Fiduciary duties flow from relationships and it necessarily follows that when shadow directorship (and nothing else) is relied on as the source of the fiduciary duty, it is only those acts of instruction which can form the foundation for any fiduciary duties that he may owe.

Thus, where any instructions are pervasive and all-encompassing, extending over the full range of the directors' decision-making, it is possible that the shadow director may owe fiduciary duties across the entire range of the company's activities. In other instances, the extent and nature of the instructions may be more restricted, being limited to particular aspects of the company's business or affairs. It seems to me that it follows that, where there is no relationship between the instruction and the act or omission of which complaint is made, it would be wrong in principle for any fiduciary duty to be owed. There is no principled basis on which a person whose shadow directorship arises out of unrelated matters ought thereby to be treated as having committed a breach of duty".

UK: Jurisdiction Taskforce legal statement on the status of cryptoassets and smart contracts

The chair of the UK Jurisdiction Taskforce, Sir Geoffrey Vos (Chancellor of the High Court), today launched the publication by the Taskforce of a legal statement on the status of cryptoassets and smart contracts: see here (pdf).  In a speech to mark the occasion (here, pdf), Sir Geoffrey observed: "I believe that this morning is a watershed for English law and the UK’s jurisdictions. Our statement on the legal status of cryptoassets and smart contracts is something that no other jurisdiction has attempted. It is genuinely groundbreaking".

UK: England and Wales: the scope of the auditor's duty of care

Judgment was given last Friday in BTI 2014 LLC v Pricewaterhousecoopers LLP & Anor [2019] EWHC 3034 (Ch). The case concerned an application by PwC to strike out a claim or alternatively for summary judgment in its favour. The claim was brought by BTI and centred on the allegation that PwC's negligent audit of two sets of annual accounts had caused directors to pay large dividends that they would not have paid had PwC acted non-negligently (the accounts, it was said, should have shown higher liabilities and fewer distributable reserves).

Mr Justice Fancourt refused PwC application and noted, in particular, that question of the scope of the auditor's duty of care was "a notoriously difficult area of the law ... it would be wrong, in my judgment, to decide the issue of law as a general proposition, on a summary basis, without having the benefit of clear factual findings in the context of which the arguments and their consequences can be properly tested" (para. [121]).

UK: New edition of the Co-operative Corporate Governance Code

Co-operatives UK has published a new edition of its Corporate Governance Code: see here (pdf). The accompanying press release is available here.

UK: The fourth Hampton-Alexander report

The fourth Hampton-Alexander report has been published: see here (pdf). Published by the Hampton-Alexander Review (an independent body set up to increase the number of women on FTSE350 boards) it provides an update on board diversity amongst FTSE350 companies. It notes, for example, that only two FTSE350 boards are male only; 42 boards have only one female director. Amongst FTSE100 boards, 32.4% of directors are female and the report notes that the target of 33% is likely to be met ahead of the December 2020 deadline.

New Zealand: Ministry for the Environment consults on climate related financial disclosure framework

The Ministry for the Environment has published a consultation paper setting out it proposals for a new framework on climate related financial disclosures: see here (pdf). This includes, in the chapter 4, a discussion of directors' legal obligations and climate change. The proposed framework would apply to listed issuers, banks, general insurers, asset owners and asset managers. It would subject them to a mandatory reporting obligation, draws on TCFD Recommendations.

UK: England and Wales: company fraud and the bankers' duty of care

The ICLR have published a summary for the recent Supreme Court decision Singularis Holdings Ltd (in liquidation) v Daiwa Capital Markets Europe Ltd [2019] UKSC 50: see here. The summary reads (to provide an extract) "On a claim by a company against a bank for breach of its duty of care to prevent a withdrawal of funds from its account by one of the company’s directors when it had reason to suspect the transaction to be fraudulent, there was no principle of law that the fraudulent conduct of the director was to be attributed to the company if it was a one-man company".

UK: audit reform - an update from Government

Parliament was dissolved earlier today in order for the general election to begin; voting takes place on December 12. Yesterday, in Parliament, the Secretary of State for Business, Energy and Industrial Strategy commented briefly on audit reform, stating (on the assumption she remained in office) that she was "very keen on the BEIS Committee’s report into audit ... I will bring forward fundamental changes to audit. I expect that to be in the first quarter of next year. I am very interested to read its report and, as I also made clear, I want to see Donald Brydon’s report, which I believe he expects to provide to Government by the end of this year". The Secretary of State has followed these comments within an opinion article published on the Economia website in which her aspirations are more fully articulated.

UK: England and Wales: the new compensation order and disqualified directors

Earlier this month judgment was given by ICC Judge Prentis in Secretary of State for Business, Energy And Industrial Strategy v Eagling [2019] EWHC 2806 (Ch). The case is important because it is the first to consider an application by the Secretary of State for a compensation order under sections 15A and 15B of the Company Directors Disqualification Act 1986. A

The case concerned a director, Kevin Eagling, in respect of whom the Secretary of State had sought (and gained) a disqualification order under section 6 of the 1986 Act. Disqualification was for 15 years. In addition to disqualification, the Secretary of State also applied for a compensation order under which, in general terms, Mr Eagling would be required to pay a fixed amount of compensation to certain identified creditors and a further sum to be available to the general body of creditors.

The compensation order sought by the Secretary of State was granted. ICC Judge Prentis viewed the compensation order regime as being new and free-standing and it required interpretation as such. He also rejected as misplaced the criticisms that had been made of the new regime, including the argument that the new regime - alongside the existing insolvency law regime - would permit double recovery. Such criticisms also overlooked, in his view, the role of the court in exercising discretion as to whether to grant an order and on what terms.

UK: FRC report - Developments in Audit

The Financial Reporting Council has published the latest edition of its annual report Developments in Audit: see here (pdf). The tone of the report is set by the opening line of the executive summary: "Audits are not consistently reaching the necessary, high standards required to provide confidence in financial reporting". The most frequent issue raised by the FRC as part of its audit inspection work concerns the sufficiency of the auditors' challenge of management; the FRC states that firms need to increase urgently their efforts to understand why audit partners and their teams continue to underperform in this area.

UK: Companies House statistics on incorporated companies

Companies House has published its latest quarterly statistics report for incorporated companies in the UK: see here. The report covers the three months ending September 2019 and it notes that this is the first quarter where the size of the effective register has exceeded four million companies (the effective register excludes those companies in the course of winding-up or dissolution).

IOSCO statement on global stablecoin initiatives

The IOSCO has today published a statement concerning the risks and benefits arising from global stablecoin initiatives and the potential application of securities market regulation to such initiatives: see here (pdf). This statement appears not long after the publication, by the Financial Stability Board, of an issues note on the regulatory issues of stablecoins.