Professionals
Related Practices
Corporate Governance Changes
This note highlights some of the actual and proposed changes to the UK corporate governance regime.
Corporate manslaughter
Legislation which came into force on 6 April 20081 has created the new offence of corporate manslaughter. This offence will be committed where a company owes a duty of care to a person but the way in which its activities have been managed or organised amounts to a gross breach of that duty and causes death. A substantial part of the failure must have been at a senior level. Penalties will include unlimited fines as well as remedial orders requiring the company to take action to remedy any failures in management which led to the death. Guidance notes on directors’ and board members’ responsibilities under health and safety legislation have been issued jointly by the Institute of Directors and the UK Health and Safety Commission.2
The Financial Services Authority Disclosure Rules and Transparency Rules (“DTR”)
The UK Financial Services Authority sourcebook contains the DTR3. A consultation is currently taking place on revisions to the DTR. The amendments are being made in order to implement Directives 78/660/EC and 83/349/EC and include the requirement for UK listed companies to publish a corporate governance statement. It is expected that the new DTR will be in force as of 29 June 2008.
The Combined Code on Corporate Governance (“the Code”)
The Code contains corporate governance principles for UK listed companies to adhere to and is kept updated by the Financial Reporting Council (“FRC”). The Code is available on the FRC website4. The FRC has recently conducted a review of the efficacy of the Code and has proposed the following changes: (a) individuals to be allowed to chair more than one FTSE 100 company; (b) chairmen of smaller companies to be permitted to be members of the audit committee if considered independent on appointment; and (c) amendments in line with the new section of the DTR. It is proposed that these changes will take effect on 29 June 2008.
The Listing Rules
The Listing Rules are published by the UK Financial Services Authority (“FSA”)5. UK-incorporated listed companies are required to report on how they have applied the principles of the Combined Code under Listing Rule 9.8.6 –the so-called “comply or explain” obligation. Companies incorporated outside of the UK are currently required to disclose in their annual report and accounts whether or not they comply with their country of incorporation’s corporate governance regime and the significant differences between their practices and those set out in the Combined Code. The FSA has proposed to remove Listing Rule 9.8.6 and is considering whether to introduce the “comply or explain” obligation by reference to the Combined Code for companies incorporated outside of the UK.
Directors’ duties
Sections of the Companies Act 2006 have codified directors’ duties. Previously such duties were derived from case law. Certain sections of the Act relating to directors came into force in October 2007 while the remainder will be implemented in October 2008. The directors’ duties in the general statement which are currently in force are to: (1) act in accordance with the company’s constitution and only to exercise powers for the purposes for which they are conferred; (2) act in a way which a director in good faith considers would be most likely to promote the success of the company for the benefit of its members as a whole; (3) exercise independent judgment; and (4) exercise reasonable care, skill and diligence. These provisions apply to directors of private companies as well as those in the public arena. The UK Institute of Chartered Secretaries and Administrators published a guidance note on the statutory duties in January 2008.
Further information
Please contact Michael Thompson at Steptoe & Johnson on +44 20 7367 8000 or mthompson@steptoe.com if you would like further information.
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1. The Corporate Manslaughter and Corporate Homicide Act 2007
