New CA 2006

The new CA 2006 is now downloadable and has been for some time, along with its explanatory notes. I am perplexed by the enormity of it all, although currently I am reviewing the new part on directors' duties and issues on their interpretation. The CLR stated its intentions to have this list exhaustive, 'modestly' stating that they had 'not been able to think of any new principles, nor areas' where added development from the courts could be of relevance. The CA and its explanatory notes do not state this decisively, although section 171(3) states that the list shall have effect in place of the common law rules. Whether that leaves the door open for the courts interpretations and rulings, is beyond my area of expertise, as non - UK legal professional. It does seem interesting that CMS McKenna in their summary on the CA doubts that the dynamic approach of the courts in that regard will change. This will be revealed soon enough.

Waiting for the CA 2006

I am still waiting for the DTI and Parliament websites to publish the new Companies Act. I have been using the last draft distributed by the HOL, but I except scanning and publishing a 1200 clause act is a 'gargantuan' task as well. I am though going to settle for the electronic version, as I fear ordering the printed form will not only erode a significant part of the worlds forests, but also be the end of my mailman.

Why a majority of NEDs on UK boards?

I must admit that I cannot see reasons that are good enough for increasing the number of non - executives on the boards of listed UK companies to a majority, as recommended by Higgs and now incorporated into the Combined Code. If the team of non - executives is made up of strong members, unafraid to speak their mind, directors of "sufficient calibre" then it makes no difference whether they are in the majority or not. Even if they are not headstrong then a total of three NEDs would well suffice in most cases.

This provision leads to a far worse scenario for the companies in question from a business perspective, as the executives, with detailed, finger-on-the-pulse knowledge can easily be outmanoeuvred by non-executives who may not have sufficient understanding of the business and its needs. To move away from Cadbury's requirement of numbers that carry significant weight is taking it a step too far.

Corporate Governance for SMEs

I am curious about the lack of provisions, encouragement and even coverage on SMEs applying good corporate governance standards. Is this simply because they are smaller players compared to the big, listed companies and can choose to take notice of these provisions if they so desire? Is it because these standards, for instance in relation to NEDs, are in fact so difficult to apply that it is not really realistic for these small companies or is it simply the old problem of constructing and implementing most company law rules as a response to the needs and requirements of large companies?

The importance of SMEs on local economies is significant, both in terms of employment as well as wealth creation, so why does it not seem as important that they apply good corporate governance. Granted they could do more picking and choosing from these rules than the bigger companies, but all in all the structure, discipline and transparency that comes with a governance regime should benefit all companies, big and small.

Voting

Why do private shareholders avoid the hassle and confrontation that may be necessary at a company's AGM. I fail to see how private individuals can invest their hard earned money and yet not stand up for their rights and intervene in the governance of their investments when necessary. Are minority shareholders too protected? Do they perhaps not have much to worry about, are they too comfortable within the companies they invest in? Will their returns perhaps not encrease so much that it is worth the effort? Equally I find it strange how investment funds and other institutional shareholders view their obligations of voting at shareholders' meetings as somehow a lesser duty?

The AGMs and EGMs are a perfect venue and the system should not be changed to open up other possibilities for shareholders to intervene, but these venues should be enhanced. How exactly - well that is the dilemma.

"The Board should not be so large as to be unwieldy"

What does this really say, did Higgs just include this to say something, to mention something about a board's size? This says nothing. This is common sense but does stating it in the Combined Code make legal professionals, directors and shareholders take this into further consideration. Inexperienced directors perhaps, but certainly not legal professionals or those responsible for preparing agendas, nominations and resolutions before shareholder meetings.

Again why does he not include a consideration that the number of board members should preferably be odd and not equal or does the chairman of UK companies always have a casting vote? It would seem an easy fix to an otherwise foreseeable problem of a stalemate in the board room.

UK Company Law History

I am still rather amazed of the development of UK Company Law over the last century and a half. My jaw has been half way to the floor during the weekend upon reading Roe's, Cheffin's and especially Alfred Chandler jr.'s theories and thoughts on political determinants in the UK as well as the business history. As a practitioner in the latter half of the 2oth century, early 21st I had dealt on numerous occasions with UK solicitors, companies and businessmen. Generally UK company law has in my mind had an aura of confidence, solid foundations and being at the forefront of company law in the world, despite the obvious problems of litigation in the country. To my bewilderment I now discover that this development and current status of UK company law is a fairly recent one, mostly accredited to the Thatcher government of 1979 to 1990. Yet this system is now being turned upside down and rewritten as we speak, so I am curious as to what the outcome will be. Apart from the Corporate Governance initiative spurred by Sir Cadbury, UK company law is still in a great deal of disarray. It may perhaps be said that the greatest detriment was caused by the left-wing governments of the post-war era, but the current CLR seems to be taking matters to the extremes as well. If the legislator's intention is to prepare a more approachable piece of company law, particularly prepared for the everyday director, adding 50% to the text from the previous version, is not the way to go about such "user friendly" updating.