Joan Loughrey

Legal Advice Privilege and the Corporate Client

This article considers the question of which corporate communications attract legal advice privilege. Specifically, it assesses the implications of adopting, on the one hand, a narrow ‘control group’ test and, on the other, a broad ‘dominant purpose’ test for determining the scope of privileged communications. The Court of Appeals decision in Three Rivers DC v Governor and Company of the Bank of England (No. 5) is compared with approaches adopted in other jurisdictions, particularly the United States. It is concluded that both tests have identifiable shortcomings. However, in light of the human rights implications of applying a broad test, it may be preferable to opt for a restrictive approach to identifying the corporate client in this context.

Accountability and the Regulation of the Large Law Firm Lawyer

The regulation of solicitors in England and Wales has undergone great change in the wake of the Legal Services Act 2007. This article considers these regulatory developments through the lens of accountability, focussing on the regulation of transactional lawyers and the large commercial firms. It examines to what extent the Solicitors Regulation Authoritys regulatory framework promotes accountability, examining entity regulation, outcomes‐focussed and principles‐based regulation, reporting and disclosure obligations, the Compliance Officer for Legal Practice and the sanctions system. It argues that although transactional lawyers cannot claim the benefit of the ethical principle of non‐accountability, as far as they and their firms are concerned, the regulatory framework is both unnecessary and insufficient. It duplicates the function of accountability to the client and fails to hold transactional lawyers to account for significant regulatory risks that they present, such as the practice of creative compliance.

Large law firms, sophisticated clients, and the regulation of conflicts of interest in England and Wales

For over a decade large law firms in England and Wales, through their representative body the City of London Law Society (CLLS), have lobbied for the relaxation of the professional conduct rules governing conflicts of interest. They argue that this is required to meet client needs, particularly sophisticated clients, and to accommodate the economic realities of a changing legal services market. They are not alone: in both the US and Canada there has been a similar push by the profession to deregulate conflicts of interest.

Smoke and mirrors? Disqualification, accountability and market trust

The Small Business, Enterprise and Employment Act introduces reforms to the regime for disqualifying company directors in England and Wales, aimed at restoring market trust in the financial services market and in business generally, by increasing the accountability of company directors. This article examines whether disqualification is an appropriate tool to achieve these goals. It considers the different forms of trust and trustworthiness that regulation can promote, and how. It argues that disqualification is a poor means of promoting intrinsic commitments to trustworthiness which would provide the greatest protection to market participants, and may have limited impact in encouraging trustworthiness for extrinsic reasons. Importantly it is a poor tool for addressing the loss of trust in the financial services market and the present focus on disqualification deflects attention from more pressing questions, namely how best to promote accountability of directors both in financial institutions and in dispersed share-ownership companies generally.

Introduction to Symposium: Accountability in corporate governance and financial institutions

Formany years, and particularly since the global financial crisis, the concept of accountability has been used increasingly frequently in government reports, discussion papers and the academic literature that have dealt with issues in corporate governance andfinancial institutions. Clearly the areas of corporate governance and financial institutions law overlap when it comes to the issue of accountability particularly in relation to the accountability, or lack thereof, of boards and directors of financial institutions. This is an issue that concerns scholars of both corporate governance and financial regulation, as well as shareholders, other stakeholders and regulators. Yet there has been little done to explain what accountability means in these contexts, what benefits accountability could have in these fields, what problems there exist in ensuring that accountability is provided for, and what mechanisms might be introduced or modified to enhance it. To address this gap, a conference on Accountability in Corporate Governance and Financial Institutionswas hosted by theCentre for Business Law and Practice, the School of LawUniversity of Leeds on 19 June 2014. Each of the following five articles has developed frompapers given at that conference and they explore accountability in corporate governance and financial institutions from a number of different perspectives, but with a unifying theme relating to board and director accountability. As Moore explains in his article, accountability is a relational concept that entails one party to the relationship being obliged to provide an account of their conduct to the other party, with that other party passing judgment on the account. Moore goes on to provide an important theoretical insight into the role of board accountability to shareholders, namely that it is required to legitimise the board’s power and discretion to affect shareholder interests, which has been delegated to the board by the shareholders themselves. Accountability in this context reduces transaction costs by substituting for the need for ongoing monitoring by the shareholders. In the absence of accountability persons such as shareholders who have consented to be subject to the exercise of the power and discretion of another would withdraw that consent. Consequently those who advocate deregulation to promote director authority are mistaken, because accountability sustains, rather than undermines, the power and authority of the board. The articles by Delvoie and Clottens, and Stewart and McNulty, assess the mechanisms by which directors and boards are held accountable to shareholders, with the former considering the role of shareholders themselves, and the latter focusing on non-executive directors. The question of to whom individuals are accountable and for what is of some importance, as it can shape how those being held to account behave. In this respect, as Delvoie and Clottens note, director accountability to shareholders, rather than necessarily being perceived as a good, has been said to have had perverse effects, by encouraging short-termism. This is because the shareholders themselves are said to have shortterm horizons. In addition such shareholders are frequently poor at holding directors to account through voice, but would rather sell their shares and exit. Delvoie and Clottens examine initiatives in a number of EU Member States and at the EU level that may increase director accountability by rewarding longer-term shareholders through loyalty shares. Such shareholders, it is hoped, will be better motivated to hold directors to account on the basis of a long-term perspective, more interested in actions that promote the long term interests of the company and, through the award of loyalty shares, better placed to exercise influence over the company. Turning to non-executive directors, McNulty and others have previously argued that these are a key device for promoting a rich, nuanced, form of accountability within the board. Stewart and McNulty build on this, arguing that there is an increased emphasis in both the UK Code of Corporate Governance, and in the hard law of directors’ duties contained in the Companies Act 2006, on the behaviour expected of directors, in particular, but not only, that of non-executive directors. This greater focus on the behavioural and the relational, and the manner in which the Code to a greater extent, and the Act to a lesser, articulate types of behaviour that non-executives should adopt to promote rich accountability may, they argue, be an effective means of influencing the conduct of non-executives in a manner that will strengthen their role in promoting accountability within the board. In turn this is more likely to lead to behavioural change in executives and more effectively benefit distant others such as shareholders, than narrower forms of accountability that emphasise legal liability and deterrence. Law and Financial Markets Review, 2015 Vol. 9, No. 1, 8–9, http://dx.doi.org/10.1080/17521440.2015.1032062

An assessment of the present state of statutory derivative proceedings

On 1 October 2007 a significant portion of the Companies Act 2006 (‘the Act’) became operative. Included in the provisions put into force on that day was Part 11 of the Act, which provides for a derivative proceedings regime. Part 11 was enacted in response to the recommendations of both the Law Commission1 and the Scottish Law Commission.2 The regime effectively overhauls the common law position which required a share- holder who wished to bring proceedings to enforce the rights of his or her company to establish an exception to the rule in Foss v Harbottle.3 The rule in Foss provided essentially that if a company was prejudiced in some way it, and it alone, had to bring proceedings against those who had committed the harmful action against it. The shareholders did not have standing to take action. If the wrongdoers were in control of the company, as directors or majority shareholders, usually the company would refrain from taking any legal action, for obvious reasons. Share- holders were left to instituting a derivative action on behalf of their company, and most often shareholders, in bringing such actions, would rely on the ‘fraud on the minority’ exception. This provided that if a shareholder could establish that the action harming the company constituted a fraud on the minority and the wrongdoers controlled the company, he or she would be permitted to take derivative proceedings. The proceedings derived from the rights of the company.