UK: England and Wales: the authority of the managing director

The High Court gave judgment last week in Smith v Butler [2011] EWHC 2301 (Ch). The case concerned a company with two shareholders: Mr Smith (the majority shareholder and chairman) and Mr Butler (the minority shareholder and managing director). Under the company's articles, two directors (one of whom must be Mr Smith) were required for a quorum at a directors' meeting. Mr Butler purported to suspend Mr Smith as chairman at a board meeting (but there was no board resolution). The trial judge held that Mr Smith's suspension was unlawful and rejected the argument that Mr Butler, as managing director, had the implied authority to suspend Mr Smith. It was, he held, for the board and not the managing director to suspend the chairman. The judge also noted that Mr Butler was not powerless: he could, potentially, bring actions under section 994 (unfair prejudice) or section 260 (derivative claims) of the Companies Act (2006).

Germany: Hermes' Corporate Governance Principles for German Listed Companies

Hermes has published an updated edition of its Corporate Governance Principles for German Listed Companies: see here (pdf). Further information about the revised Principles, and several current issues, is available here. Hermes' Principles for other countries are available here.

Ireland: the Central Bank's fitness and probity regime

The Central Bank yesterday published further information about its new fitness and probity regime: see here. Included in the publications are the Regulations which identify those positions within credit institutions subject to the new regime (here, pdf), the Standards of Fitness and Probity (here, pdf) and draft guidance on fitness and probity (here, pdf).

UK: FRC proposals published - narrative reporting, risk and going concern, the role of the audit committee and auditors

At the start of this year the Financial Reporting Council published a consultation paper titled Effective Company Stewardship - Enhancing Corporate Reporting and Audit: see here (pdf). Today, in a paper titled Effective Company Stewardship - the Next Steps, the FRC has set out some of the actions it proposes to take: see here (pdf).

With regard to narrative reporting, the FRC notes that the Government will be publishing proposals in the autumn following the consultation which ended last year. The autumn will also see the FRC launch its 'Financial Reporting Laboratory' (on October 14 to be precise) and the continuation of work to consider whether there is support for the development of narrative reporting standards. In the FRC's view, narrative reports should, in the future, focus primarily on strategic risks and should disclose the risks inherent in companies' business model. An update of the Turnbull guidance is promised but there will not be a comprehensive review. Instead, the updating will reflect improvements in practice and will clarify the board's responsibilities with regard to determining the nature and extent of the significant risks it is willing to take. With regard to boards and risk, the FRC has published a summary of its discussions with companies, investors and advisors: see here (pdf).

With regard to auditing, the FRC proposes to review and revise the auditing standards concerned with the audit report and reporting by the auditor to the audit committee - ISA (UK & Ireland) 260 and ISA (UK & Ireland) 700 - reflecting its view that more needs to be done to demonstrate that auditors are achieving the fundamental purpose of the audit. Perhaps one of the most interesting proposals is that concerning the debate about audit firm rotation. The FRC is proposing to amend the UK Corporate Governance Code to require companies to put the external audit out to tender at least once every ten years or to explain why this has not been done and the reasons for not doing so. Other changes are proposed to the Code in order to extend the remit of the audit committee with regard to the whole of the company's annual report.

South Africa: the Code for Responsible Investing in South Africa

Following consultation on a draft version last year, the Institute of Directors has published its Code for Responsible Investing in South Africa: see here (pdf). The Code complements the King Code and provides guidance, based on five principles, on how institutional investor should conduct investment activities and exercise rights in order to promote sound governance. A regard for sustainability issues is a prominent feature of the Code. Principle one, for example, provides that the institutional investor "should incorporate sustainability considerations, including ESG, into its investment analysis and investment activities as part of the delivery of superior risk-adjusted returns to the ultimate beneficiaries".