Corporate Governance Flashcards
What is corporate governance?
The oversight and exercise of control of an enterprise by its owners
The goal is to ensure that the objectives of the enterprise are being followed and met
Key objective is shareholder value
What are the 5 principles of corporate governance?
- Rights and equitable treatment of shareholders
- Interests of other stakeholders such as creditors
- Role and responsibilities of the board
- Integrity and ethical behaviour
- Disclosure and transparency
Why does CG matter?
Easier to raise capital/borrow money
Improved reputation
Improved systems and controls
Improved risk management
Rolls Royce case?
Accounting and governance issue
Bribery investigated
poor governance and failures in accountability - if governance was up to date this wouldnt happen
Mirror group (Maxwell)
Maxwell raided pension fund and left lots without a pension
What do many of these cases have in common?
Management acted alone - didn’t tell others
Management acted negligently and criminally
Shareholders discovered too late the importance management practices and decisions
Section 155 of CA?
Every company must have atleast one natural person as a director
Directorial autonomy?
Directors are not delegates or agents of the general meeting, but are under a duty to act bona fide in the interests of the company as a whole.
In the case of Automatic Self-Cleansing Filter Syndicate Co v Cunningham [1906], the articles of association gave the management powers to the board of directors. - Therefore, in these circumstances, the general meeting has no power to interfere with the management of the company by the directors by simply passing an ordinary resolution.
However, the general meeting can remove a director by ordinary resolution (s.168 CA 2006).
AGM
Annual general meeting
Section 336 CA 2006 ?
Optional for private company; compulsory for public company (s.336 CA 2006).
Section 336 (1) ?
Public company must hold an annual general meeting once in each calendar year within 6 months of accounting reference date (s. 336(1).
Section 437 and 439 CA 2006?
Deals usually with appointment of auditors, approval of accounts and related documents, declaration of dividends, election, re-election and remuneration of directors.
Section 307 CA 2006?
21 days notice required of public company for an A.G.M. but 14 days notice required of any other meeting of either public or private company. (shorter notice can be agreed upon for meetings.) Notice can be in hard copy or electronic form or by website ss.308-9.
Section 311?
Notice must specify date, place and time of meeting and should indicate general nature of business
Section 168 CA 2006?
Special notice to the company is sometimes required e.g. to dismiss a director
What is done at the general meeting?
Alterations to memorandum and articles
Alteration of share capital
Appointment and removal of auditors
Removal of directors!
What is an executive director?
Usually holds an important position within the day to day running of the company.
Managing director - has overall responsibility for the running of the company.
He or she is the agent of the company, and has apparent authority to act as agent, as in Freeman Lockyear v Buckhurst Property [1964].
De Facto Director?
Not been formally appointed, but has openly undertaken a directorial role in the conduct of the company’s affairs: Re Kaytech International plc [1999].
Shadow director?
A shareholder might avoid a formal appointment but still direct the board’s decision-making.
As now laid out in section 251 of the Companies Act
2006 and elaborated by various cases, reveals that it is actually quite hard for a person to become a shadow
director
Newey J argued that, if there is a need to show assumption of responsibility by a shadow director, then acceptance and use of corporate powers must imply such an assumption of responsibility
Case relating to directors powers?
Barron v Potter - director refused to attend any meetings - AGM hired another director
Rules relating to a managing director?
Unless directors allow for it there is none. Directors may appoint one themselves
2 types of Authority of directors?
Actual - Freeman and Lockyer v buckhurst park properties - director acted as managing director but had no actual authority so company refused to pay fees
The company was liable since by its acquiescence it had represented that the director was a Managing Director with the authority to enter into contracts that were normal commercial arrangements, and which the board itself would have been able to enter.
Ostensible
Royal british bank v turquand (1856)
The bank lent money to the defendant on the security of a bond signed by two
directors. The deed of settlement empowered the board of directors to borrow only when by a resolution of a general meeting. Defendant refused to repay the loan and argued that no such resolution had been passed and the bank should have constructive notice of the provision in the constitution.
Court of Exchequer Chamber held that the company was bound by the contract since the bank had “a right to presume that there had been a [such] resolution at general meeting”
AL Underwood Ltd v Bank of Liverpool and Martins [1924]
Mr Underwood had a personal account with the defendant bank. He was also the major shareholder and only director. He paid company cheques into his personal account with the defendant bank. When AL Underwood Ltd went into receivership, it sued the bank for the money lodged to Mr Underwood’s personal account. The bank argued that they were entitled to assume that the account into which the cheques were paid was an internal issue for the company.
Held:The lodging of company cheques into a personal account was so unusual that the Bank should have made further enquiries.
