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Strategies and Balance
Discussion
This is an edited version of the conference
notes. The editors apologise for any possible
misinterpretations.
Let me go back to the
title, bearing in
mind our
Chairman’s stricture that
we need to take account of
the new European dimension,
and work my way
into a brief discussion of
the two extremely interesting
and stimulating contributions we have had
during this session. The title says “prescriptive
versus enabling strategies,” and I want to start
with an apparently silly logical point.
The classic remit which neither of our speakers
has adopted in response to prescriptive versus
enabling strategies is “prescriptive badenabling
good.” Prescriptive Sarbanes-Oxley =
rules = bad (contrary to what Sir Ronnie
Grierson believes), and enabling = let the market
work according to broad principles = good.
It is excellent that Mr Dallas and Mr Jackson
have avoided this trap, as I would put it to you
that actually it is a false antithesis: if you are
going to make enabling strategies work, you need
prescription.
The first thing you need is adequate information
– everybody seems to agree on that. The
classic philosophy of company legislation in the
UK since the Company Law Review (and in
Europe, too, post-Jaap Winter, what I like to call
the “Spring of European Company Regulation”)
is that you begin with transparency and work
from there.
Unfortunately, enabling classic “properly
informed markets” to operate in this field is not
enough. Even if you prescribed information, that
would not be enough because, in addition to
information, you need to enable the people who
are going to act on the information to exercise
the influence that needs to be brought to bear,
and that requires prescription.
Some of the prescriptions we have in the UK
have already been mentioned this morning:
Alastair mentioned the standard UK rule that
fifty percent (and in the typical British company
that means fifty percent of the capital because we
have as a matter of practice a one-share-one-vote
rule), fifty percent can sack the board or any of
its members.
Jonathan
Rickford
Director,
Company Law
Centre, British
Institute of
International and
Comparative Law
Whilst that nuclear option is almost never
invoked, it casts its shadow over the whole relationship
between the board and shareholders.
That is not true in the United States, as Alastair
said. It is not true de facto, either, in Continental
Europe. For an enabling strategy to work, you
need legal powers and you need to disable the
removal of those legal powers, which
results in some highly prescriptive rules.
We also need to bear in mind that if
we are going to look at enabling strategies
– I will just mention this point
briefly because it has not hitherto been
raised – we need to look at enabling
strategies at different levels. There are
enabling strategies at the level of the
shareholders, there are enabling strategies
at the level of the company (and, in particular,
the board), and there are enabling strategies
at the level of the member states.
If we are looking in a European context, clearly
enabling strategies in terms of community policy
and community legislation can operate either
by adopting a role of enabling member states (or
at least not disabling member states), or enabling
shareholders. So my first point is that enabling
and prescriptive are not contrary and mutually
exclusive terms; indeed, you need prescription to
enable enabling.
My second point is about trust, which was
raised by George Dallas, and I think also by
David Jackson. It is often said that what we really
need is trust, as if that excluded legislative or
regulatory intervention, which, to my mind, is
not good enough.
What we need is a climate in which actions by
company management can be trusted, and that
requires a regulatory context. To take George’s
grid of people and architecture, I completely
agree that a bad architecture and good people is
hugely better than bad people in good architecture.
The reason, of course, is if you have really
good people you don’t need architecture at all. If
you have got an effective system of company
management, being operated by responsible and
well-informed business people with good judgement,
you do not need procedures. But the point
of course is that good architecture and good people
are not mutually exclusive. The object of the
exercise is to produce an architecture which
encourages good behaviour in the dynamic environment
of company management. In that context,
it has been said that principles trump rules
and trust cannot be legislated.
It seems to me that the benefit – and here I
do agree with the initial thesis – the benefit of
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