In this tutorial we consider the decision-making of the company. You should understand from your reading the functions and powers of the Board of Directors and the Annual General Meeting, and the corporate governance recommendations that deal with the issues that arise when listed plc’s have widely dispersed shareholdings.
For this tutorial gather as much information as you can about the general meetings of your company, the composition of its board of directors and its approach to corporate governance. Everybody might enjoy a look at before or after this tutorial.
You are a minority shareholder in a public company, Esquire plc, with Table A articles. Esquire plc manufactures skin and beauty products for men. It has been successful since its inception and is presently making substantial profits. You are concerned that the company is using materials in its manufacturing process which have been tested on animals. You want the Board to adopt a policy of only using materials which have not been tested on animals. It is likely that the adoption of such a policy would increase the company's manufacturing costs. The company is due to hold its annual general meeting within the next six months.
(A) How could you try to effect a change in the company's current practice, and how would the Board attempt to retain its control over company policy? In your answer you should examine the legal and practical difficulties facing you and your chances of success.
These are some areas to which you might give consideration:
• the roles of the board and general meeting
• how the general meeting can affect the board's decisions
(B) Assume the above facts but with the following variation. You are still a minority shareholder but your shareholding is substantial and you are an institutional shareholder. Would you be likely to be any more successful in influencing the Board?
Think about pp240-251 of Hicks and Goo. Why are the Codes about corporate Governance extracted there believed to be necessary? How are they “enforced”? What is the role of non-executive directors? Why are they given this role? Are other measures necessary to ensure that managers identify with investors’ interests? What perspective did the information you accessed from http://www.hermes.co.uk/ add to the information in Hicks and Goo?
(D) Do you agree with Dignam’s view of the UK system of “negotiated regulation”?
Companies Act 2006, Part 13, (Resolutions and Meetings) ss 281-361, and Reg. 70 of Table A.
Use these materials together with to tackle the division of powers, and mechanical aspects of meetings and resolutions raised in the problem question below.
Chapter 15 plus pp 365-378 of Gower and Davies 8th ed. and
Chapter 7 plus pp 222-225 of Hicks and Goo 6th edtn.
Gower and Davies 8th edtn pp 359-363 plus Chapter 14 and Hicks & Goo, 6th Ed Ch 7 (as advised above) & pp. 235-269 on corporate governance and the role of the board.
Alan Dignam. “Exporting Corporate Governance: UK. Regulatory Systems in a Global Economy” (2000) 21 Company Lawyer 70-76
Play around with http://www.hermes.co.uk
and links from it to see how an important UK institutional investor which leads the pack on corporate governance issues sees things.