CORPORATE GOVERNANCE
IN THE UK
29 May 2008
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
363216
2
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
363216
3
What is Corporate Governance?
 What is corporate governance?

Laws / Regulations

Conflicts of Interest

Effective measures
363216
4
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”
363216
5
Corporate Entities in the UK

Private

Public

Listed
• LSE
• AIM
363216
6
Legal Framework

What is the regulatory framework for corporate
governance?

Case law

Statute – Companies Act

Company Constitution

Listing / Prospectus / Disclosure Rules
363216
7
Legal Framework (continued)

Codes and Guidance Notes

Combined Code on Corporate Governance
• Listed companies
• Not Mandatory
• “Comply or Explain”
• Overseas corporations
363216
8
Legal Framework (continued)

Turnbull / Smith / Higgs

Role of Quoted Companies Alliance

City Code on Take-Overs and Mergers
363216
9
Legal Framework (continued)

FSMA
• Disclosure and use of confidential / price sensitive
information
• False market
• Disclosure and Transparency Rules
363216
10
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?
363216
11
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?
363216
12
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?
363216
13
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?
363216
14
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?
363216
15
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
363216
16
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
363216
17
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
363216
18
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
363216
19
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?
363216
20
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?
363216
21
Corporate Governance and
Disclosure of Information
 Do directors have to disclose information about the
company to shareholders, the public or regulatory
bodies?
363216
22
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?
363216
23
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?
363216
24
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?
363216
25
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?
363216
26
Corporate Governance and
Corporate Social Responsibility
 Is it common for companies to report on social,
environmental and ethical issues?
363216
27
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?
363216
28
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?
363216
29
Corporate Governance and
Whistleblowing

Is there statutory protection for whistleblowers?
363216
30
Corporate Governance and Current
Examples


BAE
M&S
363216
31
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
363216
32
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
363216
33
Conclusion
 UK system – 25 years

Russian system less experienced / early stages

Impact of public markets / commercial objectives
363216
34
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
363216
35
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
363216
36
Michael Thompson
Michael is a partner in the London office of Steptoe &
Johnson and is head of the Corporate Group. Michael
focuses on Russian and CIS businesses.
mthompson@steptoe.com
TEL: +44 (0)20 7367 8070
FAX: +44 (0)20 7367 8001
99 Gresham Street
London EC2V 7NG
United Kingdom
Michael specialises in all aspects of corporate finance
work including advising both in relation to AIM and
Stock Exchange listings, acquisitions and disposals of
public and private companies, venture capital
(including management and leveraged buyouts), joint
venture and shareholder agreements.
AREAS OF PRACTICE
Corporate Transactions
Telecommunications
Media Law
Technology
Mergers, Acquisitions, and Joint Ventures
EDUCATION
London School of Economics LL.M., 1988
University of Southampton LL.B., 1984
363216
37
Adam Greaves
Adam is a partner in the London office and specialises
in commercial litigation and arbitration, particularly
fraud and corruption and insurance and reinsurance
disputes, principally in the English Commercial Court.
agreaves@steptoe.com
TEL: +44 (0)20 7367 8050
FAX: +44 (0)20 7367 8001
99 Gresham Street
London EC2V 7NG
United Kingdom
AREAS OF PRACTICE
Alternative Dispute Resolution
Commercial Litigation, Insolvency &
Creditors’ Rights
Litigation
Worldwide Arbitration & Dispute Resolution
EDUCATION
Essex University, L.L.B., 1983
Guildford Law College, Law Society Finals,
1984
Adam is recommended by the UK Legal 500 and has
considerable experience in project managing large
multi-jurisdictional disputes and obtaining or
defending worldwide freezing injunctions.
Jurisdictions with which he has worked include the UK,
USA, Russia, India, Saudi Arabia, Iran, Lebanon,
Brazil, Switzerland and various off-shore tax havens.
In addition to the insurance/reinsurance industry, he
has handled cases involving telecoms, aluminium,
diamonds, construction, Islamic banking, media,
information technology, shipbuilding, chemicals,
pharmaceuticals, recruitment, investment, property
development and accountancy.
363216
38
Egishe Dzhazoyan
edzhazoyan@steptoe.com
TEL: +44 (0)20 7367 8057
FAX: +44 (0)20 7367 8001
99 Gresham Street
London EC2V 7NG
United Kingdom
AREAS OF PRACTICE
Litigation
Worldwide Arbitration & Dispute Resolution
Egishe is a Senior Associate in the London office,
where he is a member of the International Dispute
Resolution group. Prior to joining Steptoe & Johnson,
Egishe practised for five years as a Russian qualified
lawyer with a leading Moscow based law firm where
he dealt with a number of high profile arbitration and
litigation proceedings in various jurisdictions including
Russia, USA, England, Sweden, Switzerland, Cyprus,
BVI and France. He maintains a specific interest in
Russian work and also has particular experience in
representing clients in the telecom, metals and nuclear
industries.
EDUCATION
St. Edmund’s College, Cambridge University,
LL.M, 2007
Moscow State University, Ph.D, 2006
Moscow State University, J.D. with Distinction,
2002
363216
39
Yuri Presniakov
ypresniakov@steptoe.com
TEL: +44 (0)20 7367 8055
FAX: +44 (0)20 7367 8001
Yuri is a solicitor based in the London office and has
particular interest in Russia and Eastern European
markets. Yuri is bilingual and has gained experience at
law firms both in Russia and the UK and has gained
experience in large scale corporate, litigation and
arbitration involving Russian parties at Steptoe &
Johnson. He has a Masters degree in Law from the
London School of Economics and a Bachelors degree
in Law from the University of Reading.
99 Gresham Street
London EC2V 7NG
United Kingdom
AREAS OF PRACTICE
Corporate Transactions
International Dispute Resolution
EDUCATION
London School of Economics LL.M., 2006
University of Reading LL.B., 2005
363216
40
Michael Thompson
Partner
Steptoe & Johnson
99 Gresham Street
London EC2V 7NG
Tel:
Fax:
+44 207 367 8070
+44 207 367 8001
mthompson@steptoe.com
363216
41