A survey of 71 of Britain's largest companies about the impact of the Company Law Reform Bill (Companies Bill) on directors has provided one of the most comprehensive pieces of evidence to date of boardroom concerns and confusion which the Bill has given rise to.
Designed to modernise and simplify Company Law, the Bill is currently at the Committee stage of its passage through the House of Commons.
The survey was commissioned by international law firm Herbert Smith and carried out last month among mainly company secretaries and heads of legal departments.
The findings were presented at a Herbert Smith seminar yesterday attended by around 200 senior business figures.
30% of the survey participants came from the FTSE 100, 65% from the FTSE 350. Chief among their concerns were the prospects of more claims against directors and of greater difficulties in recruiting them, particularly non-executives:
- 79% believed proposed new shareholder rights will lead to more claims against directors
- 73% anticipated that increasing claims will make it harder to recruit directors
- 69% thought exposure to potential claims is acting as a deterrent to would-be directors
- However, only 20% of respondents had in practice found it difficult to recruit new directors
Views were mixed as to whether codification of directors' duties, a key driver behind the Bill, would help clarify for directors their duties or prompt a change in the way these are carried:
- 43% thought it would not provide more clarity (against 47% who said it would), believing it would lead to greater cautiousness, risk-aversion and slower decision making
- 55% thought there would be no change in the way directors carry out their role (against 38% who thought there would be)
The survey also captured views on, among other issues, whether directors' exposure to claims has increased in recent years (84% thought it had) and on matters relating to companies' D&O insurance and directors' indemnity provisions.
Austin Sweeney, a partner in the corporate practice at Herbert Smith, commented:
"The findings give some statistical underpinning to the anecdotal concerns we've been picking up from FTSE companies and investment banks. Namely, that in the laudable aim of clarifying duties the Bill is creating some uncertainty and may well engender more bureaucracy. All eyes will now be on the Courts to see how they will interpret the provisions relating to directors' duties. In the short-term we are expecting to see more claims against directors, particularly from those parties who regard litigation as part of their armoury in M&A, hostile takeovers and other major transactional activities."
Please click here for the report on the findings of the survey, which was carried out by Nisus Consulting (MS Word document, 500k).
Notes to editors
Herbert Smith LLP is an international legal practice with 1100 lawyers (including over 200 partners) and a network of offices in Europe and Asia. It has a formal alliance with leading German firm Gleiss Lutz and leading Dutch and Belgian firm Stibbe. On 1 April 2005 Herbert Smith became Herbert Smith LLP, a limited liability partnership. www.herbertsmith.com
For further information please contact Tom Rose in the communications team on +44 (0)20 7466 3119 or tom.rose@herbertsmith.com