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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A derivative action is one where a shareholder takes legal action on behalf of the company. This goes against the general rule that the affairs of the company are managed by the directors. The reason for this remedy to is to provide a mechanism for redress where, for example, directors refuse to act (particularly where they are the wrongdoers).
The Companies Act 2006 introduced a new procedure for derivative actions which includes a two stage process for permission. So far the courts appear to have been cautious about allowing shareholders to exercise the remedy but the recent case of Stainer -v- Lee and others may indicate a slightly more relaxed approach.
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If you are involved in a shareholders dispute there can be a temptation to do nothing and hope that it all blows over. Sometimes this is just what happens and it is the right thing to do. However, a failure to grasp the nettle can also have unfortunate consequences. You might find that your shareholders rights have been significantly diminished by a delay in taking action.
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In an article in the FT Michael Kavanagh discusses the current challenges facing non-executive directors (with a few quotes from yours truly).
Click here to read the article.
As yet another shareholders meeting registers disapproval of executive pay, this time at easyJet, the question arises as to whether now is the time to hand some greater control over directors remuneration to shareholders.
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Mitchells & Butlers (”M&B”) owner of pub chain All Bar One has been airing its dirty linen in public. Rebel shareholders at the company have seen their representatives kicked off the board in what has all the hallmarks of a classic boardroom dispute.
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Lawyers involved in fighting for shareholders rights are not normally thought to be in a dangerous profession. That is unless you are a lawyer in Russia.
The death has been announced (see Daily Telegraph article) of Sergei Magnitsky, 37 year old father of two and a lawyer in the firm of Firestone Duncan in Moscow who were representing Hermitage Capital Management.
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The EU Shareholder Rights Directive is a grand title but on close analysis it does not add much to the armoury of a UK shareholder aggrieved with the company in which they hold shares.
Consequently it has been implemented in the UK (via the Companies (Shareholders’ Rights) Regulations 2009 with relatively little fanfare. The main reason for the lack of excitement is that the regulations generally only apply to “traded companies” and they only marginally increase shareholders rights or powers overall.
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A rare example of shareholders anger over excessive remuneration bearing fruit has been seen with the giant oil company Shell.
Bonuses awarded to Shell executives this year were widely considered to be excessive and the remuneration committee came in for intense criticism. The committee felt it proper to award significant bonuses even though performance targets had not been met.
The usual symbolic exercise of shareholder rights took place (see previous posts on this subject) and the pay settlement was voted down at general meeting. Now it is reported in The Times that two members of the remuneration committee, including the chairman Sir Peter Job, will step down. It looks like the shareholders did get their scalps after all.
One other interesting thing about the reporting of this event is that Shell itself seems to have come to the view that after 9 years as a non-executive director (NED) Sir Peter could no longer be considered to be truly independent. This reflects other discussions currently being had about the role of NEDs and suggests that the days of a NED having a long term sinecure are now well and truly gone.
The report by Sir David Walker into the governance of the banking industry has some interesting things to say about corporate governance generally.
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Corporate Governance, Shareholders disputes | Ed Weeks | 
August 23, 2010 11:20 am | 
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