To all those reading this I am David Gibbs; I am a Lecturer in Company and Commercial Law at the University of Hertfordshire.

I created this blog as a general out-let of ideas for my research, as well as keeping those interested up-to-date on my research and general interests.

I completed my PhD thesis at the University of East Anglia in 2014. The thesis was recommended for the award of PhD with no corrections. My external examiner was Prof. Simon Deakin (Cambridge) and internal examiner was Prof. Morten Hviid.
My PhD research centred on directors' duties and company law. The thesis was titled 'Non-Executive Self-Interest: Fiduciary Duties and Corporate Governance'. It was a doctrinal and empirical study on whether self-interest was suitably controlled amongst non-executive directors.

My supervisors were Prof. Mathias Siems, Prof. Duncan Sheehan, Dr. Sara Connolly and Dr. Rob Heywood

All opinions of any existing or future blogpost are my own. They do not necessarily represent the views of any of my associated institutions.
ORCID 0000-0002-6596-8536

Friday, 8 April 2011

ESMA publishes data on approved and passported prospectuses

The ESMA have published data on the amount of approved, sent and received prospectuses throughout the EU between 1 Jul 10-31st Dec 10.

The last data (CESR/07-225) collected was between the period 1st July 05-30 June 06. However, to draw some analysis the data can be broken up in to the same time period as the new data.

The data shows a notable decrease in the amount of approved and passported prospectuses despite Bulgaria and Romania being included in the latest study. This is due to them not being members of CSER until 1st Jan 2007. Data was not fully available for the earlier study either so the decrease may be even higher than the figures show.

The causes attributable to the decrease can be speculated about. The financial crisis and economic uncertainty may attribute to the decline. This may also be caused by the 'mutual recognition regime' in place prior to 1st July 05 which saw an increase in passports notified from comparable data from 2004.

Countries like the UK, Ireland and Luxembourg, who contributed significantly to the total amount of approved prospectuses throughout the EU, have seen significant decreases in approved prospectuses. Countries like Germany and Italy however have seen themselves move closer to the former countries in terms of approved prospectuses. Germany did however also suffer a decrease but Italy showed a notable increase from 88 prospectuses in 2005 to 332 in 2010. 

Total number of prospectuses approved:
UK: 2005 = 845; 2010 = 509
Luxembourg: 2005 = 493; 2010 = 314 
Ireland: 2005 = 788; 2010 = 241
Germany: 2005 = 301; 2010 = 291 

Total across EU: 2005 = 3328; 2010 = 2511

Wednesday, 6 April 2011

Article Publication Released

A bit later than expected due to inadequacies in the postal service but my gratis copy of my article has been received and here it is!

Citation: (2011) 32(3) Company Lawyer 76

EC Green Paper on Corporate Governance

Ready for more of the same? The Green Paper published by the Commission on corporate governance for European Companies was published yesterday.
This paper aims to address three key issues... (stop me if you have heard this before)

1. Board of directors - Non-executives are needed with more skills, diversity and experience and invest sufficient time in the board
2. Shareholder monitoring - Apparently, evidence shows the majority of shareholders are apathetic and focused on short-term goals. The review wants to try and get more shareholders involved and promote long-term returns and sustainability
3. How to apply 'comply or explain' - Companies are not providing sufficient explanations for diverging from the Code

Well, point 3 is perhaps an area which needs looking at. The Combined Code in the UK has increasingly seen more and more adherence to it - see for example Grant Thornton's Corporate Governance Review -, even leading up to the crash in 2008. Despite no "one size fits all" approach there seems to be evidence of firms converging to the same model. A deeper understanding is needed of why do people adhere to the Combined Code or generally corporate governance codes around the EU? One would hypothesise that it is because it attracts investors; but is that really enough to blindly walk in to complying with the Code? I am of no doubt that there is a stronger thought process before deciding on internal governance but a review is needed.

As to boards of directors this could potentially be interesting. The first point may be for at least UK companies is that non-executives are generally experienced and knowledgeable according to a 2009 review by Grant Thornton.

With non-executives becoming more involved does this change the structure of the board and does it affect our understanding of the firm?

It would seem points one and two of the Green Paper go hand in hand. Monitoring is difficult for shareholders and so boards become a market-induced body to monitor executive management. However, if non-executives become more involved then this may incur problems at least from an agency theory perspective. Shareholders will then have to monitor the boards more rigourously and in truth are likely to incur higher agency costs to ensure they do not incur conflicts of interest or shirk responsibilities.

However, I like many others, are not a strong believer of agency theory. For one agency theory often makes the common mistake of seeing the firm as a nexus of contracts. Law however, makes it clear this is not the case. A corporation is its own legal entity with objectives generally decided by the directors.

With the board becoming more involved we seem to be converging away from agency theory, closer to stewardship theory and resource dependency theory. It seems the biggest and boldest move would be to confirm the status of the company and the board as the principal according to agency theory with executive management as the agents.

Shareholders are not well placed to monitor who generally spread risk by having a diverse portfolio of investments and are not concerned enough to monitor any one individual firm. Instead of getting shareholders more involved we should be looking for ways to keep them investing whilst removing levels of direct involvement. This could be done through higher shareholder representation on the board for example.

One issue that needs to be rigorously addressed will be fiduciary law no matter what changes take place. Fiduciary law itself can be explained by agency theory and thus may be problematic if different economic theory such as stewardship can explain the firm.

With non-executives increasing their involvement how will this impact on their liability? Will it be necessary to have clearly defined duties depending on the type of director you are? Increased liability of course, is met with significant opposition and their resistance is usually enough to deter any significant changes.

Non-executives themselves are often executives of other companies. With suggestions of increased time commitment this may have an impact on the people capable of taking directorships. It may also cause stronger friction in multiple directorships or more severe or common breaches of the duty of care with directors spreading themselves too thin.

However, fiduciary law is flexible and based on fundamental principles of loyalty and care by the agent to the principal. As long as the director adheres to these principles owed to the company there should not be a pressing issue, more so for executive members of the board at least.

It seems safe to say the EC needs to think long and hard about the implications of involving shareholders and non-executives more in the company. Under the current structure non-executives should not become more involved without some sort of increased monitoring of them, which is a cost shareholders are unlikely willing to bare. But if directors and the company can be seen as the principal then it may go a long way to improving corporate governance as directors are more attached to the company, capable of understanding the company's needs, and objectives.