Mallin: Corporate Governance 2e 
Updates
PowerPoint presentationsMallin: Corporate Governance 2e
Chapter 3
Combined Code (2006)
Page 27 in book
In April 2007, the Financial Reporting Council (FRC) issued a document entitled 'Review of the Impact of the Combined Code'. The main purpose of the review is 'to determine whether the Combined Code is appropriately enabling listed companies to be led in a way which facilitates entrepreneurial success and the management of risk'. The FRC will publish its findings before the end of 2007.
www.frc.org.uk/corporate/combinedcode.cfm
Company Law Review
Page 28 in book
In November 2006, the Companies Act (2006) finally received Royal Assent after a prolonged period in the making. The Act updates previous Companies' Acts legislation, but does not completely replace them, and it contains some significant new provisions which will impact on various constituents including directors, shareholders, auditors and company secretaries. The Act draws on the findings of the Company Law Review proposals.
The main features are as follows:
- directors' duties are codified
- companies can make greater use of electronic communications for communicating with shareholders
- directors can file service addresses on public record rather than their private home addresses
- shareholders will be able to agree limitations on directors' liability
- there will be simpler model Articles of Association for private companies, to reflect the way in which small companies operate
- private companies will not be required to have a company secretary
- private companies will not need to hold an annual general meeting unless they agree to do so
- the requirement for an Operating and Financial Review (OFR) has not been reinstated, rather companies are encouraged to produce a high quality Business Review
- nominee shareholders can elect to receive information in hard copy form or electronically if they wish to do so
- shareholders will receive more timely information
- enhanced proxy rights will make it easier for shareholders to appoint others to attend and vote at general meetings
- shareholders of quoted companies may have a shareholder proposal (resolution) circulated at the company's expense if received by the financial year end
- whilst there has been significant encouragement over a number of years to encourage institutional investors to disclose how they use their votes, the Act provides a power which could be used to require institutional investors to disclose how they have voted
All parts of the Act should be in force by October 2008 with certain provisions taking effect much earlier, for example, company communications to shareholders, including electronic communications, took effect from January 2007.
Overall there seems to be an increasing burden for quoted companies whilst on the other hand the burden seems to have been reduced for private companies. In terms of the rights of shareholders these are enhanced in a number of ways including greater use of electronic communications, more information, enhanced proxy rights, and provision regarding the circulation of shareholder proposals at the company's expense. Equally there is a corresponding emphasis on shareholders' responsibilities with encouragement for institutional shareholders to be more active and to disclose how they have voted.
Companies Act (2006) Her Majesty's Government, Available for download from www.opsi.gov.uk/
Other useful websites in relation to the Companies Sct 2006
www.icaew.com/library/index.cfm?AUB=TB2I_44492
ICAEW website: useful exposition of directors' duties under the Companies Act 2006.
www.legislation.gov.uk/acts/acts2006/pdf/ukpga_20060046_en.pdf
The Companies Act 2006 (all 760 pages!).
www.dti.gov.uk/bbf/co-act-2006/index.html
The DTI website provides details of the key changes and links to more detailed aspects of different areas.
www.companiesact.org.uk/
The ICSA website details various aspects of the Companies Act 2006
www.companieshouse.gov.uk/companiesAct/implementations.shtml
Companies House has a useful summary of the timetable for implementation of different sections of the Companies Act 2006.
EU Company Law Experts
Page 35 in book
There have been a number of developments aimed at enhancing corporate governance in the EU. The Commission Action Plan on modernising company law and enhancing corporate governance in the European Union has set the improvement of the rights of shareholders of companies across the Member States as a priority. After two public consultations, the Commission proposed early in 2006 a directive which was formally adopted in June 2007. The Directive has to be incorporated into Member States' laws by summer 2009 and "will ensure in particular that shareholders have timely access to the complete information relevant to general meetings and facilitates the exercise of voting rights by proxy. Furthermore, the directive provides for the replacement of share blocking and related practices through a record date system".
In June 2007, the Commission published an external study on proportionality between capital and control in EU listed companies. Proportionality is the relationship between capital and control ('one share, one vote'). The study, carried out by Institutional Shareholder Services Europe (ISS Europe), the European Corporate Governance Institute (ECGI) and the law firm Shearman & Sterling LLP, found that "on the basis of the academic research available, there is no conclusive evidence of a causal link between deviations from the proportionality principle and either the economic performance of listed companies or their governance. However, there is some evidence that investors perceive these mechanisms negatively and consider more transparency would be helpful in making investment decisions."
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