CORPORATE GOVERNANCE IN THE UK

CORPORATE GOVERNANCE IN THE UK

Introduction and Overview • Introduction • Overview • Legal framework in the UK • Composition and Remuneration of the Board of Directors • Management Rules and Authority • Duties and Liabilities of Directors • Transactions with Directors and Conflicts • Disclosure of Information • Company Meetings

Introduction and Overview (continued) • Minority Shareholder Rights • Internal Controls, Accounts and Audit • Corporate Social Responsibility • Role of General Counsel • Role of Institutional Investors • Whistleblowing • Practical examples BAE / M&S • Summary / Conclusion

What is Corporate Governance? • What is corporate governance? • Laws / Regulations • Conflicts of Interest • Effective measures

History of Corporate Governance • Late 1980’s / early 1990’s scandals • The need for reform • Cadbury Report / Greenbury Report / Combined Code / Turnbull Guidance / Higgs Report / Smith Report • Key principles of Combined Code • Board composition • Remuneration • Accountability • Audit • Relation with shareholders • Approach – “Comply or Explain”

Corporate Entities in the UK • Private • Public • Listed • LSE • AIM

Legal Framework • What is the regulatory framework for corporate governance? • Case law • Statute – Companies Act • Company Constitution • Listing / Prospectus / Disclosure Rules

Legal Framework (continued) • Codes and Guidance Notes • Combined Code on Corporate Governance • Listed companies • Not Mandatory • “Comply or Explain” • Overseas corporations

Legal Framework (continued) • Turnbull / Smith / Higgs • Role of Quoted Companies Alliance • City Code on Take-Overs and Mergers

Legal Framework (continued) • FSMA • Disclosure and use of confidential / price sensitive information • False market • Disclosure and Transparency Rules

Corporate Governance and Board Composition • What is the management / board structure? • Is there a one / two-tiered structure? • Who manages a company and what name is given to these managers? • Who sits on the board(s)? • Do employees have a right to board representation? • Is there a minimum / maximum number of directors?

Corporate Governance and Board Composition (continued) • Are there age / nationality restrictions? • Are non-executive or independent directors recognised? • Does a part of the Board have to consist of them? If so, what proportion? • Do non-executive directors have to be independent of the company? • If so, what is the test for independence or what makes a director not independent?

Corporate Governance and Board Composition (continued) • What is the scope of their duties and potential liability to the company, shareholders and third parties? • Are the roles of individual board members restricted i.e. can one person be chairman/CEO? • How are directors appointed? Is shareholder approval required? • Methods of removal of directors • Are there any restrictions on a director’s term of employment?

Corporate Governance and Board Composition (continued) • Do directors have to be employees of the company? • Can shareholders view directors’ service agreements? • Are directors allowed or required to own shares in the company? • How is directors’ remuneration determined? • Does the remuneration need to be disclosed? • Is shareholder approval required?

Corporate Governance in respect of Management Rules and Authority • How is a company’s internal management regulated? • Can directors exercise all the powers of the company or are some powers reserved? • Can the powers of directors be restricted? • Can the board delegate responsibility for specific issues to individual directors or a committee of directors?

Corporate Governance in respect of Duties and Liabilities of Directors What is the scope of a director’s duties and personal liability to the company, shareholders and third parties? General Duties • Act in good faith • Improper purpose • Personal profit • Failure to disclose own interest • Failure to keep confidential information

Corporate Governance in respect of Duties and Liabilities of Directors (continued) Directors’ duties have been codified in CA 2006 General duties are: • Act within powers • Promote success of the company • Exercise independent judgment

Corporate Governance in respect of Duties and Liabilities of Directors (continued) • Exercise reasonable care, skill and judgment • Avoid conflicts of interest • Not to accept benefits from third parties; and • Declare an interest in a proposed transaction

Corporate Governance in respect of Duties and Liabilities of Directors (continued) You should note the following: • Theft and fraud • Securities law • Insolvency law • Health and safety • Corporate Manslaughter • Environment

Corporate Governance in respect of Duties and Liabilities of Directors(continued) • Can a director’s liability be restricted or limited? • Is it possible for the company to indemnify a director against liabilities? • Can a director obtain insurance against personal liability? • If so, can the company pay the insurance premium?

Corporate Governance in respect of Transactions with Directors and Conflicts • Are there general rules relating to conflicts of interest between a director and the company? • Are there restrictions on particular transactions between a company and its directors? • Are there restrictions on the purchase or sale by a director of the shares in the company of which he is a director?

Corporate Governance and Disclosure of Information • Do directors have to disclose information about the company to shareholders, the public or regulatory bodies?

Corporate Governance and Company Meetings • Does a company have to hold an AGM? • What issues must be discussed and approved? • Can shareholders call a meeting?

Corporate Governance and Minority Shareholder Action • What action can a minority shareholder take if it believes the company is being mismanaged? • What level of shareholding is required to do this?

Corporate Governance and Internal Controls, Accounts and Audit • Are there any formal requirements or guidelines relating to the internal control of business risks? • What are the responsibilities and potential liabilities of directors in relation to the company’s accounts? • Do the company’s accounts have to be audited? • How are the company’s auditors appointed?

Corporate Governance and Internal Controls, Accounts and Audit (continued) • Is there a limit on the length of their appointment? • Are there restrictions on who can be the company’s auditors? • Are there restrictions on non-audit work that the auditors can do for the company that they audit accounts for? • What is the potential liability of auditors to the company, shareholders and third parties if the audited accounts are inaccurate?

Corporate Governance and Corporate Social Responsibility • Is it common for companies to report on social, environmental and ethical issues?

Corporate Governance and Role of General Counsel • Is it common for the general counsel to be on the board or to have a formal role in corporate governance?

Corporate Governance and Role of Institutional Investors • How influential are institutional investors and other shareholder groups in monitoring and enforcing corporate governance? • List groups with significant influence in this area?

Corporate Governance and Whistleblowing • Is there statutory protection for whistleblowers?

Corporate Governance and Current Examples • BAE • M&S

Summary • Single board • Clear division of responsibilities • Balance of executive / non-executive directors • Formal / transparent procedures relating to appointment • Formal / transparent procedures for setting executive remuneration

Summary (continued) • Balanced assessments of the company’s position and maintenance of internal controls • Formal / transparent procedures for responsibilities including an audit committee • Maintenance of contact with shareholders • Separate resolutions on all substantial issues at general meeting

Conclusion • UK system – 25 years • Russian system less experienced / early stages • Impact of public markets / commercial objectives

Why Steptoe & Johnson? • International law firm – offices in London, New York, Washington, Chicago, Los Angeles, Phoenix and Brussels • Focus on inward and outward investment in respect of Russian and CIS countries • Russian speaking lawyers in London office • Proactive / partner led service

Why Steptoe & Johnson? • Ability to provide UK / US input on securities issues • Experience on private and public related transactions • Strong network of contacts in financial and professional community

Michael Thompson

Adam Greaves

Egishe Dzhazoyan

Yuri Presniakov

Michael Thompson Partner Steptoe & Johnson 99 Gresham Street London EC2V 7NG Tel: +44 207 367 8070 Fax: +44 207 367 8001 mthompson@steptoe.com

CORPORATE GOVERNANCE IN THE UK

CORPORATE GOVERNANCE IN THE UK

Presentation Transcript