Few small or medium size businesses operate to the letter of their Articles of Association (”Articles”). This is not that surprising given the technical language and complexity of many of these documents. Even where the directors and shareholders are aware of the terms of the Articles the requirements can seem technical and have little relationship to the day to day business of making money. Because of this the Articles are more often observed in the breach. Most of the time companies get away with this relaxed approach but in the event of a shareholders dispute or a dispute between shareholders and directors then the first thing a lawyer is likely to do is get hold of a copy of the Articles and digest the contents. This can lead to some unpleasant surprises.
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In any shareholders dispute one of the first questions that will occur to a lawyer is how much are you arguing about. However, it is surprising how often this has not been addressed by parties to a dispute.
Shareholder litigation is notoriously expensive. As part of any risk analysis an assessment of the proportionality of taking legal action is essential. It is rare that any good lawyer will ever advise that litigation should be embarked on as a point of principle. It should only be contemplated where a commercial case for doing so can be made out.
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One clear way to improve your position in a shareholders dispute is to act early and act fast. It is often the case that lawyers are called in too late, when early intervention could have made a real difference.
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When you specialise in dealing with shareholders disputes you become more of a commercial divorce lawyer than a commercial litigator. The passions that can be aroused in a dispute between the shareholders in a business are as intense as those which my colleagues in the family law sphere are used to dealing with. How to avoid these passions killing the golden goose in boardroom disputes is a perennial problem.
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Marks & Spencer, which has suffered a spate of boardroom battles over the years, continues to provide examples of institutional shareholders attempting to exert control.
The latest shareholder intervention occurred at the recent AGM of the company when a group of institutional shareholders lead by local government pension funds sought to bring forward the appointment of an independent chairman. Currently Sir Stuart Rose occupies both the roles of chief executive and chairman which on the face of it is a deviation from the corporate governance code promulgated by the Financial Reporting Council.
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Boardroom disputes and shareholders disputes always have the potential to seriously damage the company in question. One particular problem, particularly in the current financial climate, is that banks may use a dispute as a reason to terminate or curtail a companies banking facilities. The problems can be even worse for listed companies.
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The merits of talking instead of fighting are very clear when it comes to boardroom disputes and shareholders disputes. Even a simple shareholder dispute can incur six figure legal costs on each side. A new mediation service has been launched which might help in this process.
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There has been an avalanche of articles about the scandal of MP’s expenses as the Daily Telegraph drip feeds us the latest salacious details. My own perspective is to consider the parallels with shareholder disputes and the timely exercise of shareholders voting rights at Shell’s AGM provides an interesting comparison.
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As the latest series of The Apprentice gathers pace with an epic boardroom encounter involving Ben, Debra and the unfortunate Noorul, what does this series tell us about boardroom disputes.
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There have been a number of recent instances of shareholders venting their anger at general meetings and refusing to agree company accounts or the remuneration packages of directors. Whatever the cathartic value of such actions, in practice these protests have no more than symbolic value.
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Corporate Governance, Shareholders disputes | Ed Weeks | 
August 23, 2010 11:20 am | 
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