Keith Johnstone and Will Chalk

a company may by ordinary resolution remove a director before the expiration of his period of office, notwithstanding anything in its articles of association or in any agreement between the company and the director concerned; this is a fundamental right of shareholders and, arguably, the best weapon they have.

Therefore, the combined effect of these provisions constitutes powerful sanctions for non-compliance with the Combined Code and other guidelines. They give shareholders the power to take action against the board or individual directors for any concerns or failures of the type referred to in the September 2005 statement from the ISC. This power has manifested itself in the following instances:

the biggest revolt against a chief executive came in 2002, when abstentions and votes cast against John Ritblat of British Land plc totalled 31.5 per cent;

the biggest protest vote against a chief executive was against James Murdoch, Chief Executive of BskyB, in 2003, when 17.29 per cent of votes were registered against him;

the biggest revolt against an executive was the 36.9 per cent vote, including abstentions, against Brian Wallace, deputy Chief Executive of Ladbrokes.38

Proposals for reform

To address the concerns of those arguing that the existing sanctions are not sufficiently clear and accessible to ensure compliance with, for example, the Combined Code, it is worth considering adding further weapons to the armoury of shareholders in the more extreme situations.

One possibility would be to include, in company law, a requirement for boards to convene an EGM to address any complaint from a regulator about non-compliance with, for instance, the Part VI Rules; the purpose of such a meeting would be ‘to consider whether any, and if so what, steps should be taken to deal with the situation’.39 Failure to convene a meeting could lead to directors being liable to fines.

Another possibility might be to extend the circumstances where individual directors might be disqualified, for example for a serious breach of the Part VI Rules. This might be more effective than a delisting and would, in one sense, provide a fairer result as it would target the perpetrator (the director or directors who are the culprits) as opposed to penalising shareholders.

Finally, as the arguments for good corporate governance are well established and the benefits that the Code has brought to Officially Listed companies are

38Source: The Times, 26 July 2006.

39This wording appears in section 142 1985 Act in relation to the duty of the directors to convene an EGM in the event of a serious loss of capital.

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