Arad Reisberg

THE UK STEWARDSHIP CODE: ON THE ROAD TO NOWHERE?

In this article I seek to demonstrate that, as drafted, the UK Stewardship Code (SC) is trivial, absent of meaning and incapable of achieving its goals. I will begin by demonstrating how little it has achieved to date and can expect to achieve in the future. In doing so, I will reconsider arguments, advanced elsewhere, concerning the conceptual problems with the SC, specifically: how it is drafted and upon what it focuses. I will then advance new concerns about the practical issues of the SC that make it a blunt tool of corporate governance but go on to show that there are a number of potential ways to change this. In doing so, I hope to provide the impetus to divert the SC from its current path, travelling along the road to nowhere, and instead seek a journey that not only has a destination but a much more promising one.

The notion of stewardship from a company law perspective: Re‐defined and re‐assessed in light of the recent financial crisis?

Purpose – The Stewardship Code, the first of its kind for the Financial Reporting Council, seeks to encourage better dialogue between shareholders and company boards. Given the UK markets role as a governance paragon, the code principles will be critical to practices of good stewardship taking root globally. But this new Code raises concerns, for example, as to how to treat non‐UK investors who collectively now hold upwards of 40 percent of the countrys equity market. Would they voluntarily adhere to the code, and, if not, how relevant or effective would the code be? The purpose of this paper is to shed light on these topical questions.Design/methodology/approach – The paper focuses on stewardship as an important criterion for assessing the performance of larger shareholders (i.e. institutional shareholders). Section 2 explains the concept of “stewardship”. It also outlines its growing importance. Section 3 introduces the Stewardship Code, tracks back its genesis, focusing, in particular, on the underly...

Shadows of the Past and Back to the Future: Part 11 of the UK Companies Act 2006 (in)action

The purpose of this article is primarily to look into the early demonstration of the new statutory procedure relating to derivative claims under Part 11 of the UK Companies Act 2006. The article is organized as follows. Section II briefly outlines the scope and the procedural framework for the application for leave of the new statutory derivative claim under Part 11 of the 2006 Act. Section III looks into an early demonstration of the new statutory procedure in practice in two recent cases, namely, Franbar Holdings Ltd v Patel and others and Mission Capital plc v Sinclair. Section III then discusses the lessons that can be drawn from these two cases. It also assesses the likely impact of these cases on the future development of the law. Section IV discusses recent important international development in relation to these proceedings. Finally, Section V draws some conclusions.

Theoretical Reflections on Derivative Actions in English Law: The Representative Problem

Abstract Minority shareholders face particular difficulties where they seek redress against wrongdoing directors. This state of affairs seems to reflect an implicit acceptance both by the judiciary, the English Law Commission and the Company Law Reform Bill that it is somehow undesirable that companies should be exposed to civil litigation by minority shareholders (ie derivative actions). This type of thinking is rarely (if ever) made explicit; nonetheless, it is likely to continue being the primary policy impediment to enhancing the potential utility of derivative actions. The purpose of this article is primarily to inquire into these restrictive standing rules and subsequently to examine two policy responses to the problem that the company lacks an authentic decision-making body to determine whether or not a derivative action is in the best interests of the company as a whole.

Funding Derivative Actions: A Re-Examination of Costs and Fees as Incentives to Commence Litigation

This article is concerned with the critical role of costs and fees in initiating and maintaining derivative actions in the context of incentives to such litigation. First, it briefly explicates the economics of derivative action litigation. As part of this, the US rules on derivative action fees are examined. After rehearsing the common law recognition of the problems of the impecunious shareholder in the form of indemnity costs orders, it exposes major flaws in the operation of these costs orders. In response, three possible solutions to rectify the funding problem are considered: (i) making a mandatory requirement for the company to pay the costs of the action; (ii) rewarding the plaintiff with part of the proceeds of a successful action; and (iii) employing conditional fee agreements. These are examined and assessed.

The Law on Corporate Governance in Banks

Corporate governance in financial institutions has come under the spotlight since the banking crisis in the UK in 2008-9.

PREFACE: THE LAW OF THE CORPORATE GOVERNANCE OF BANKS AND FINANCIAL INSTITUTIONS

The corporate governance of banks and financial institutions came under the spotlight in the wake of the global financial crisis 2008–09, the subsequent conduct scandals such as the manipulation of the London Inter-Bank Offered Rate by several UK and international banks, and other miss-selling, corruption and financial crime scandals. Although misjudgements in risk and sub-optimal corporate behaviour are not uncommon in the corporate sector, the utility and systemic risk profiles of the banking sector, in particular, are important attributes that warrant public concern with any failings in the internal governance of banks that could culminate in excessive risk-taking or sub-optimal corporate behaviour. In this volume, we address key themes in the internal governance of banks and financial institutions that we believe are of topical interest. The law and Corporate Governance Code discussed in this volume are stated as at March 2014. In Chapter 1, Andreas Kokkinis discusses the governance structure of most widely held banks and financial institutions, and the incentives that may result in excessive risk-taking. He reveals that conventional agency-based corporate governance frameworks may be unsuitable for banks and financial institutions as they arguably do not address the governance challenges in banks and financial institutions and may indeed entail counter-productive incentives exacerbating governance problems. In Chapter 2, Edward Walker-Arnott discusses the importance of the board as collectively managing and making key decisions in banks and financial institutions, and argues that neither company law nor financial regulation address the issue of collective responsibility and how that can be boosted to improve board stewardship. This thought-provoking chapter takes stock of recent policy discussions and proposals for legislative reforms but critically asks if new law and new provisions in governance codes are really on the right track. In Chapter 3, John Lowry and Rod Edmunds shift the focus from collective directorial responsibility by asking whether individual directorial responsibility for banks and financial institutions could be enhanced via the application of the directors’ disqualification regime. They highlight that to date it has not been applied notwithstanding some clear political pronouncements (including those of UK’s Business Secretary, Dr Vince Cable) that it should be harnessed to prevent certain named directors in the UK’s failed banks (RBS and HBOS in particular) from holding directorships in the immediate future. As the chapter indicates, the reasons why disqualification proceedings have not been initiated is all the more intriguing in the

Derivative claims, the UK companies act 2006 and corporate governance: A roadmap to nowhere?

This chapter analyses recent reforms of the derivative claim in the UK as implemented by the Companies Act 2006. Recent reforms and modernisation of company law is part of a drive to facilitate enterprise and enhance the attractiveness of the UK as a location in which to do business. The reforms of derivative claims are, naturally, part of this wider drive. The chapter focuses on those areas that are particularly relevant to the question of whether the new legal framework relating to derivative claims is likely to promote these goals.