CORPORATE GOVERNANCE IN THE UK

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CORPORATE GOVERNANCE IN THE UK
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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

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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 / MS
• Summary / Conclusion

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What is Corporate Governance?

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

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History of Corporate Governance

• Late 1980s / early 1990s 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

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Corporate Entities in the UK

• Private
• Public
• Listed
• LSE
• AIM

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Legal Framework

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

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Legal Framework (continued)

• Codes and Guidance Notes
• Combined Code on Corporate Governance
• Listed companies
• Not Mandatory
• Comply or Explain
• Overseas corporations

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Legal Framework (continued)

• Turnbull / Smith / Higgs
• Role of Quoted Companies Alliance
• City Code on Take-Overs and Mergers

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Legal Framework (continued)

• FSMA
• Disclosure and use of confidential / price
  sensitive information
• False market
• Disclosure and Transparency Rules

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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?

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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?

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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 directors term
  of employment?

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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?

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Corporate Governance in respect of Management
Rules and Authority

• How is a companys 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?

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Corporate Governance in respect of Duties and
Liabilities of Directors

• What is the scope of a directors 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

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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

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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

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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

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Corporate Governance in respect of Duties and
Liabilities of Directors(continued)

• Can a directors 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?

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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?

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Corporate Governance and Disclosure of Information

• Do directors have to disclose information about
  the company to shareholders, the public or
  regulatory bodies?

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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?

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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?

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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
  companys accounts?
• Do the companys accounts have to be audited?
• How are the companys auditors appointed?

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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
  companys 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?

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Corporate Governance and Corporate Social
Responsibility

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

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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?

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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?

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Corporate Governance and Whistleblowing

• Is there statutory protection for whistleblowers?

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Corporate Governance and Current Examples

• BAE
• MS

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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

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Summary (continued)

• Balanced assessments of the companys 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

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Conclusion

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

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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

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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

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Michael Thompson
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Adam Greaves
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Egishe Dzhazoyan
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Yuri Presniakov
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Michael Thompson

• Partner
• Steptoe Johnson
• 99 Gresham Street
• London EC2V 7NG
• Tel [phone]
• Fax [phone]
• mthompson_at_steptoe.com