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Institutional Activism
16
Disqualification Act – it’s no secret I would like
to see that act extended to breaches by directors
of disclosure rules, which are not necessarily
happening – if directors deliberately favour one
group of shareholders against or above another
group in terms of sharing information, those
directors are not fit to be on a board and they
ought to be subject to the possibility of a disqualification
order.
Alastair
Ross
Goobey
Idon’t know why this view has
got about that unitary boards
are somehow failing. I don’t
think they are. Of course in practice,
it almost works out to a two-tier system: I
don’t know of a single serious company where
the executives don’t meet separately before the
board meeting, to make sure that they are all
speaking the same language to the board when
they get in front of the non-executives. But in
Germany, for instance, you have, in effect, threetier
boards – I don’t know a single serious company
there where the management nominees on
the supervisory board don’t meet separately from
the union representative on the management
board, before the supervisory board meets.
It is not just in the UK and other Englishspeaking
countries that you have unitary boards:
France boasts the unique opportunity of doing
things in three different ways. You can have a
unitary board in the sort of Anglo-American way,
or you can have a two-tier board, or you can have
something which is dominated by the PDG
(Président Directeur Générale), who has more
power than Napoleon had. Of course there are
good PDGs – there are good strong executives,
Ronnie – and there are bad ones. The only people
who could try and intervene when an executive
has been identified as not a very good one, or
not acting in the interest of shareholders, are the
shareholders, through their voting. I don’t think
there is a conclusive answer to whether the single-tier
board is a good thing or a bad thing. I
think it works pretty well, and if it works, don’t
fix it – but I agree with Ken Rushton that we
should come up with a better approach to
breaches of disclosure.
Professor
Dan
Prentice
Ihave no problem extending
the Disqualification Act to
breaches of confidential
information. It seems that what
Mr Rushton wants to do is extend it in such a
way that breach of the regulatory provisions
would automatically result in (or at least could be
the basis for) disqualification.
Ken
Rushton
Idon’t want to prolong the discussion
too much. At the
moment, we don’t have the
power to disqualify a director. Under the new
system we can levy unlimited fines as a correctional
measure. I’m not saying that is not a powerful
sanction, but a real deterrent would be the
threat of disqualification for a period.
Dr Paul
Flather
less threat to directors
Sir Ronald
Grierson
Sir Ronnie, could you comment
here Does it work
better – is the balance better
– in America because there is
Ithink the main difference
between America and this
country is that the Americans
rely more on law, which I am in
favour of. We try to self-regulate and the
Americans feel more comfortable with law. The
Sarbanes-Oxley Act is a prime example of this
resort to law, changing the security laws. Almost
everything America is now seen as a Securities
matter because the recent governance problems
are seen to arise from the issue of securities from
a public limited liability companies, and therefore
that is where bad practice has to be tackled.
The holder of the security, once that piece of
paper has been issued, is the one that needs protection
and that protection comes to him under
law rather than by relatively cosy arrangements
of a self-regulatory nature.
Jonathan
Rickford
British
Institute of
International
and
Comparative
Law
It seems to be obvious common
sense that you don’t
treat all shareholders alike. If
Alastair rings up Sir Ronnie and
says, “I want to talk to you about
your company’s remuneration
policy,” Sir Ronnie may treat
Alastair differently from the way
he would treat me if I rang up. If
he has any sense, he would realise that he would
have a real problem at his annual general meeting
from Alastair, but he won’t from me. In
accordance with normal principles, as regards
the direction of the company, he should treat
Alastair in a very different sense from me. Now if
there is a legal requirement that every shareholder
is to be treated alike in all circumstances,
regardless of the size of stake and inclination to
be involved, then we have a problem. There is a
legal requirement that this be the case, and contrary
to what Dan Prentice suggested, it cannot
be completely changed because it is in the
Second and Thirteenth European Directives.
There is a series of different problems that
issue here. There is the problem of sensitive/confidential
information brought up by Ken
Rushton, and then there is the principle of equality.
To give an example from a German company
that I recently advised about a takeover, it has