Welcome!

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


Tuesday, 29 November 2011

Innovation in Law Schools

The Financial Times have written a special report on innovative law schools. The short article focuses on the importance of combining law and business understanding in a move towards an increased inter-disciplinary learning and research environment between these different schools.

Having an undergraduate degree in business law and having studied a module on international business for my Masters I would largely agree with what the article has to say. I see a lot of value in people broadening their horizons and keeping their options open for the future.

Having a broader understanding from an inter-disciplinary approach can help develop new ways of thinking in research as well as being more employable for practice, whether as a lawyer or businessman.

Whether business and law schools will combine in the future may be a likely outcome but I do not think the need for inter-disciplinary research and study will be the sole driver of that. A stronger influence may be the reforms in higher education, in the UK at least, that drive schools to combine resources.

The special report also contains a number of other law school related articles. Access to all articles can be found here.

Tuesday, 22 November 2011

How much is too much?

A short discussion about a year long inquiry by the High Pay Commission as to executive remuneration is available on the BBC website. The full report can be found here.

See here for the news article.

Also, see here for the full business 'bottom line' about business ambition.

Chair of the High Pay Commission Deborah Hargreaves and Dr McGregor of the firm Taylor Bennett highlighted the following issues:
  • Executive pay is complicated a should be simplified as shareholders cannot understand 
I would propose it is far from complicated. In fact it is pretty straightforward bar a few elements such as rights issue adjustments. Directors are usually awarded a base fee, a bonus based on year performance -sometimes 3 years (shares and cash), and an Long Term Incentive Plan (LTIP - in shares based on a 3 year performance period against a comparator group on measures such as Total Shareholder Return (TSR) and Earnings Per Share (EPS)). They also receive benefits e.g. company car and a pension which is not monies paid by the company rather it is a debt.

They are also entitled to participate in Save As You Earn (SAYE) schemes where they can buy shares in the company; as well as share option schemes.
  • That executive pay is a 'closed shop'
Linking to the first point, really. It is quite transparent, executive remuneration, in truth.
  • There should be worker representation on the board
As Dr McGregor rightly points out, but was drowned out, it is not right to have worker representation on remuneration committees as proposed by Deborah Hargreaves. We do not have co-determination. She is also right in pointing out the pension funds do have employee representation on them as they have an interest in it as it represents their shares.

If you listen carefully (at around 5:30) the host also tries to argue that the directors are all members of the "same club" who award each other vast amounts of remuneration - hinting towards the governance debate about multiple directorships - and employee representation will prevent abuse. From my own research there appears to be very little cross over between non-executives on remuneration committees and executive directors on FTSE 100 companies.

In truth there are probably better ways at encouraging consideration of employees than having a voice on the remuneration committee. If corporate governance codes are used to influence committee members to include median employee earnings, for example, alongside TSR and EPS when awarding LTIPs this may create a fairer system. So when directors' pay is up employees should not be losing their jobs and having salary reduced.
  • Directors are unlikely to leave if pay becomes more stringent
Deborah Hargreaves argued that it is a myth that directors cross borders to get the best pay packages and it is merely used as an excuse to award high executive salaries. She argues that as you move up the ladder you actually become less mobile.
  • Shareholders should set pay
Both guests suggested that shareholders should set pay. I would propose the opposite. Shareholders setting pay is not practical. We have spent years moving away from shareholder involvement because they generally do not take an active interest in the running of the company as they spread their risk across different companies. Governance structures tell us that better remuneration policies will come from a stronger non-executive board and remuneration committee.

Furthermore, if shareholders do not understand executive remuneration, what qualifies shareholders to set remuneration? It is a self defeating argument. There are very few reasons why shareholders would wish to increase their involvement.

If shareholders did set pay they would probably still consult the same advisors to the remuneration committee themselves and nothing is likely to change.

Friday, 18 November 2011

Blog voted as one of the Top 25 'International and Foreign Law' Blogs

Thank you to all those who voted for me. My blog has been voted as one of the top 25 blogs in the category of 'International and Foreign Law'. Voting now begins for the TOP BLOG of the year.

If you could again spare another five minutes to vote for my blog it will once again be greatly appreciated! Please vote here. Or if that link does not take you straight to the page click here then click on the 'VOTE' hyperlink.

Tuesday, 15 November 2011

Non-Executive Multiple Directorships in FTSE 100 Companies: An example

So, as I get to grips with SPSS and analysing my data... I thought I would upload one of the graphs that I have produced so far (see bottom of this blog).

It must be noted that the below graph has been produced from me playing around with the data. Thus, the totals below represent all of the firms non-executives' multiple directorships over the five year period. The data is multi-levelled and the graph does not account for different years of the same firm. This graph also only accounts for non-executives who served for the full year and does not account for any non-executive who joined or left the board during the years.

As you can see however, some firms in certain years, some companies have non-executives with over 30 other positions split between them. Looking at my data these companies were WPP, Unilever and HSBC. HSBC accounting for most of the instances below with their non-executives holding over 30 other directorships in the years 2006-2009, although that figure drops to 23 in 2010.

The mean highlights that companies' non-executive directors on average have 14.63 other directorships. The median was 13 and so there is not any great outliers pulling the mean although the box plot produced did identify 8 outliers but this may change once the different levels (years) are accounted for. 

For any prospective law PhD students I have definitely come to see the advantages of producing empirical research. Even if you are not trained, undertaking a PhD allows you the opportunity to gain these new skills just like I am doing at the moment. It can also add great value to your final piece as it offers inter-disciplinary opportunities and quite obvious originality.  

From a legal aspect of my research, recently, there has been a case to discuss the meaning of non-executive director in the case of Mond v Bowles (2011) 21st Oct Ch D. It was suggested that the meaning may vary from company to company and that the Companies Act 2006 provides no definition of a non-executive director. That would suggest that the definition of 'director' in the Companies Act 2006 s250 only applies to executive directors. With that said, I have not come across a case that says directors' duties and the meaning of director only applies to executive directors. Whilst other types of directors, such as shadow, do have their own definition and thus explicitly different from executives, there is no clear suggestion that s250 does not apply to non-executives as well as executives. It would seem such a definition under s250 would be quite fitting for non-executives as well since it states that directors are people occupying the position of director by whatever name called.

However, if s250 was adopted for non-executive directors it would have to be clear that every reference to director in the Companies Act does not apply equally to executives and non-executives; or in some cases not at all to the latter.

When deciding if the individuals where non-executives, the court highlighted that the individuals' roles had gone beyond merely protecting the investors investment, which may send a warning to other non-executives in larger companies who are quite actively engaged in strategy. Such consequences may see non-executives being classed as executive directors by an enthusiastic liquidator perhaps. It seems perfectly possible that somebody appointed a non-executive could become an executive due to the inclusive nature of s250.

Friday, 11 November 2011

European Commission Press Release: New rules for more efficient, resilient and transparent financial markets in Europe

The European Commission has recently published a press release announcing plans to revise the Markets in Financial Instruments Directive (MiFID) in the form of a Directive and a Regulation.

The aim is to ensure all trading venues have to "play by the same transparency rules and that conflicts of interest are mitigated". The reforms also aim to provide better access to capital markets for Small and Medium Sized Enterprises (SMEs) by creating a specific label for SME Markets that meet their needs.

There is also mention of taking in to account technological advances that have drastically increased the speed of trading that causes exposure to risk. Through increasing transparency and reinforcing supervisory powers by regulators the reforms aim to strengthen investor protection.

Wednesday, 2 November 2011

Nomination for top 25 blogs on International and Foreign Law

Each year LexisNexis honours a select group of blogs that set the online standard for a given industry. I am pleased to announce that my blog has been nominated in the category for International and Foreign Law

For all my readers out there, I would greatly appreciate your votes for my blog. Please follow the hyperlink here to the LexisNexis voting page and vote for me. Once you have registered all you have to do is follow the instructions on this link to vote for me - i.e. scroll to the very bottom and fill in your details and which blog you are voting for (Gibbs: Law and Life) and click send.

Registering is very simple and free. I hope that you will take the time to vote. It will be greatly appreciated. Winners will be announced in December.

Derivative claims: where are we?

One of the key objectives of the derivative claims reform, formulating in the statutory codification under Part 11 of the Companies Act 2006, was to allow more claims to proceed in appropriate circumstances.

My published articles in the Company Lawyer earlier this year demonstrated that despite six claims in England and Wales being brought before the courts, only in the case of Kiani [2010] EWHC 577 had there been permission to continue and here it was down to disclosure. (The other five cases where Franbar [2008] EWHC 1534, Mission Capital [2008] EWHC 1339; Fanmailuk [2008] EWHC 2198; Stimpson [2009] EWHC 2072; and Iesini [2009] EWHC 2526)

From these six cases all passed the initial hurdle that there was a prima facie case. However, two were dismissed for a mandatory bar, primarily on the fact that no director would continue the claim if acting in accordance with s172 (duty to promote the success of the company). The three remaining cases dismissed appeared to come up against a reluctant court to allow the claim to proceed since the final stage of the permission hearing leaves permission to continue to the judge's discretion. Although guidance as to what to consider under their discretion is given under s263(3), it is not an exhaustive list. None of these six cases considered anything beyond these factors under s263(3) though (although in the case of Stimpson the judge suggested he had done so, but in fact the interests of employees, I argued, should be considered under s263(3)(b) anyway).

Where permission was allowed down to disclosure, it appeared the only reason it got that far was the fact the other side had produced no evidence to the contrary. Comparing the Kiani position to the case of Franbar where they produced some rudimentary evidence to the contrary and permission was refused, it seems likely that Kiani would have failed if they had produced very little evidence to the contrary.

Since these six cases, four more derivative claims have been heard. These claims are Seven Holdings [2011] EWHC 1893; Kleanthous [2011] EWHC 2287; Stainer [2010] EWHC 1539; and Cinematic Finance [2010] EWHC 3387. 

Three have been dismissed and one, Stainer, has been allowed subject to various conditions. Cinematic Finance involved a rare instance of a majority shareholder bringing a derivative claim. Demonstrating it is technically incorrect to refer to derivative claims and unfair prejudicial petitions as minority shareholder protection. However, the judge quite rightly demonstrated that a majority shareholder would only be able to bring a derivative claim in very exceptional circumstances and the claim was denied.

The case of Kleanthous was a useful reminder that part 11 does not assert some sort of threshold test to allowing permission. Even if there is a strong, arguable case of breach of duty it does not necessarily mean permission will be allowed to continue. Thus, it is conceivable (although unlikely in this author's opinion) that permission could be allowed where the court in not convinced there is a strong case.

The case of Stainer was referred to by Kleanthous which originally highlighted the fact that there was no threshold test to allowing permission, i.e. if the case is very strong but recovery very small it may be appropriate to continue and vice versa.

In Seven Holdings permission was refused. The court acknowledged that derivative claims under s260(3) could only be pursued for 'a cause of action arising from an act or omission involving negligence, default or breach of duty by a director of the company'. It was held that some claims did not fall within this scope and those that did, no director would consider prosecuting them.

More importantly, Seven Holdings at [12] confirms my point that when considering to allow permission under s263(3)(b) 'whether a director acting in accordance with s172 would attach weight to continuing the claim' that the subsections to s172 should also be included in that consideration.

The judge in Seven Holdings also discussed the importance of the ex parte application stage i.e. establishing that there is a prima facie case without involving the company. He established that it was important that this stage was not ignored or removed. Although, contrary to what I said in my articles, I would now agree that this is the correct approach, although with some slight qualifications as to its standard. The judge at [6] appeared highly critical that this preliminary stage had been bypassed, and that he had to deal with the second stage despite no evidence or presumption that the application supported a prima facie case.

The fact that the stage has been bypassed demonstrates that despite a transparent statutory procedure it is by no means followed rigidly. This perhaps demonstrates the flexibility of the new claim to filter out unnecessary formalities and reduce costs, but in cases such as Seven Holdings where it was quite apparent that there was not even a prima facie case, the process should be followed.

Another objective of the reform was to reduce the cost of derivative claims as they had previously been a costly procedure. The judge in Seven Holdings at [61-3], however, pointed out that this would be a likely consequence of the reform, although we are yet to see a claim last as long as a month as we did pre-2006. He followed on from his criticism that the first stage had not been observed stating that it would have saved a lot of time and money if it had been.  

Thus, it still appears that the courts approach derivative claims with scepticism and reluctance, although Stainer offers hope to shareholders that there may be a departing from former ways.

Careers Seminar

On the 29th November UEA will be hosting an 'Academic Careers Seminar' for Postgraduate Research law students.

With uncertainty as to job prospects the aim of the day is to enhance employability by raising awareness and transparency of the application process for academic positions and what those positions involve.

For example, those wishing to pursue a research career will benefit from the talk about the Research Excellence Framework (REF) and what the requirements are for researchers.

There will be a number of talks from UEA law lecturers to help make the day a success.