7.2.0 Introduction

Documentgegevens:

N.J.M. van Zijl, datum 05-10-2012

Datum: 05-10-2012
Auteur: N.J.M. van Zijl
JCDI: JCDI:ADS600613:1
Vakgebied(en): Ondernemingsrecht / Algemeen
Ondernemingsrecht / Corporate governance

For the analysis of the British situation it is important to rely on different kinds of legal sources. A distinction must be made between primary legislation, secondary legislation, case law and the constitution or articles of association (Davies et al. 2008: 3.3-3.10). Primary legislation for the analysis in this study has one primary piece: the Companies’ Act 2006. Primary legislation requires time to be approved by the parliament and become a book. This relatively heavy time consumption is considered to be a disadvantage for those parts of primary legislation regarding matters in rapidly changing economic areas, which requires frequent updating of legislation. In these areas, secondary legislation is used, which is compiled by the relevant department or is delegated to law-making powers, such as the Financial Services Authority (FSA) or the Financial Reporting Council (FRC). An example of secondary legislation that is used in this chapter is the Listing Rules of the FSA, which apply to companies that are listed. Furthermore, case law remains an important source of law in the United Kingdom as it is a common law country. The constitution is a remarkable feature of British company law in comparison to the Netherlands and Sweden. The constitution, of which the articles of association are an important part, determines to a large extent the internal affairs of the company. The constitution or articles of association deal with everything that is not regulated through primary and secondary legislation and case law. The composition of the board is an example of an issue that is regulated by the articles of association. The constitution or articles of association are controlled by the shareholders and may differ between companies. However, the Secretary of State has drafted model articles of association – The Companies (Model Articles) Regulation 2008 – that are referred to in the remaining part of this chapter. These model articles of association are not mandatory, but many companies have derived their articles of association from (the predecessors of) model articles of association (Davies et al. 2008: 3.10).

This section describes the six issues regarding independence in the United Kingdom. Table 7-2 gives a brief description of these issues for the British legal framework. In the remainder of this section, these issues are elaborated upon. This chapter focuses solely on listed public companies (public limited company, Plc).

Table 7-2: Brief description of the six issues regarding independence for the United Kingdom.

1. The board structures available to the company	The unitary board structure with a distribution of tasks between executive directors and NEDs is the standard board structure in the United Kingdom.
2. The appointment of supervisors	Appointment of a director (executive or non-executive) takes place through the adoption of an ordinary resolution by a simple majority of the general meeting. The company’s articles of association may require a higher majority or unanimity and can provide that the other directors may appoint a director.
3. The removal or suspension of supervisors	Removal of a director takes place through the adoption of an ordinary resolution by a simple majority of the general meeting.
4. The independence criteria and their application	The independence criteria are listed in subsection 7.2.4. They focus on seven relationships and circumstances, which cover employment, business relationship, additional payments, family relationships, cross-directorships, share-ownership and long tenure. At least half of the board, excluding the chairman, should comprise independent NEDs.
5. Other parts of law or regulations that influence the independence of supervisors	A supervisor’s duty is to avoid conflicts of interests, declare interest in proposed transactions and not to accept benefits from third parties. The board should evaluate its own performance and that of its board committees and members annually. The evaluation should be facilitated externally every three years. A statement about the evaluation should be made in the annual report. Diversity should be considered when directors are appointed. Future code provisions require the inclusion in the annual report of the company’s policy on diversity, including gender.
6. Enforcement of the requirements regarding independence	Companies are required to include in their annual report how they have applied the main principles. Furthermore, they have to include whether they have complied with the code provision and give reasons for non-compliance, if any. The FSA may suspend the listing or impose monetary penalties if companies fail to comply with this obligation.