INTRODUCTION

Historically, one of the most distinctive features of British economic regulation and in particular its corporate governance regulation has been its self-regulatory nature.¹ In the financial services sector up until the year 2000 the regulatory roles were carried out by organisations formed by the industry itself. For corporate governance issues chief among these regulators was the London Stock Exchange (LSE), the Panel on Takeovers and Mergers, and the various bodies representing the accounting and legal professions. That is, however, no longer the case as the past decade has seen the systematic replacement of the self-regulatory bodies with direct state control. What follows in this paper is both an account of this dismantling of the self-regulatory framework in the corporate governance arena and ultimately an argument that the self-regulatory system in the UK has played an important role in British economic success, which may have been underestimated in the haste to reform.

CORPORATE GOVERNANCE IN THE UK

The classic Berle and Means corporation with its characteristic dispersed shareholding base and real separation of ownership from control emerged only in the UK in the 1970s.² Accompanying this change came a concern about unaccountable managers and underperformance, which resulted initially in a focus on industrial democracy as a solution to these early corporate governance problems.³ Unlike the US where, faced with similar problems, solutions were sought based on shareholder primacy, the UK initially sought to constrain management discretion by increasing the power and participation in the firm of the employees.⁴ The high point in the industrial democracy debate came in the late 1970s with the report of the Bullock Committee,⁵ advocating the benefits of increased employee participation. At this point, even the business lobby represented by the Confederation of British Industry accepted that a more inclusionary approach was needed.⁶

Things changed rapidly with the election of the Conservative Government led by Margaret Thatcher in 1979. Margaret Thatcher's admiration for US free market economists, particularly the work of Milton Friedman, soon had the UK engaging in wholesale reform of its public sector based upon market solutions. The privatisation of public sector industries (British Telecom, British Gas, Water, Electricity), reform of pension provision, healthcare, social welfare, the removal of barriers to capital inflow and outflows, and the removal of employment protection changed the nature of the corporate governance debate utterly within the course of a decade.⁷ Government policy changed from giving priority to creating employment to a focus on economic tools such as interest rate levels that could keep capital flowing into the UK. Industrial democracy was replaced by shareholder-oriented market-based solutions.⁸ Initially, a boom occurred but by the late 1980s the boom ran out of steam and recession followed by the beginning of the 1990s.

This provided a gap in which the experience of the previous decade could be evaluated. In this gap, general public concerns were expressed by academics and the media that market forces had a detrimental effect on employees and communities.⁹ Employment reform had made it easier and less costly for companies to dismiss employees. This was followed by post-privatisation employee rationalisation and a booming market in takeovers and mergers had resulted in employees' further rationalisation.¹⁰ Management in the UK also appeared to push higher proportions of wealth generated by the company to the shareholders as dividends rather than reinvesting it in the company.¹¹ This reduced the financial cushion that management might have had if there was a downturn in the economy.¹² As a result, the combined effect of market-based shareholder performance measures and employment reform made it the easy choice for management to cut costs by dismissing employees. At the same time, directors' salaries had increased enormously.¹³ In the early 1990s, the sudden collapse of a number of high-profile companies¹⁴ proved a turning point and turned corporate governance reform into a political issue.¹⁵

THE CORPORATE GOVERNANCE DEBATE: THE INDUSTRY RESPONSE

The successive impacts of scandal and recession in the late 1980s and early 1990s led ultimately to reform of UK listed companies.¹⁶ The collapse of three companies (BCCI, Polly Peck and the Robert Maxwell Group) all of whom had clean bills of health from their auditors, yet collapsed suddenly, dented market confidence in the accountability processes operating in UK listed companies, which in turn fed into a general public distrust of large companies.¹⁷ While the Government at the time vaguely threatened to legislate, ultimately it was industry itself coordinated by the Bank of England (BOE) that responded to these concerns.¹⁸

THE CADBURY COMMITTEE

The first response was the Cadbury Committee (1992) on the Financial Aspects of Corporate Governance established by the Financial Reporting Council, the LSE and the combined accounting bodies.¹⁹ The remit of the Committee was fairly narrow but its chairman, Sir Adrian Cadbury, took the view that the quality of financial reporting could only be ensured if boardroom accountability was also improved. Thus, the committee examined boardroom accountability issues, and produced solutions based upon the monitoring role of nonexecutives and wider disclosure regimes.²⁰

The main recommendations were as follows.

1. The committee emphasised the key role of the board in the company's decision-making process and recommended that major transactions should be decided by the board. Cadbury was concerned that senior managers rather than the board were making these key decisions with the resulting diminishing of board responsibility.
2. The key roles of Managing Director and chairman of the Board should not be combined as it represented a dangerous concentration of power, which could allow an individual to dominate a board. This was a reflection of the lesson learned from the Maxwell collapse where Robert Maxwell held both key positions.
3. The main board should have nonexecutive directors sufficient in number and quality to carry significant weight in board decisions. These nonexecutives should be independent of the company. A committee structure should also be put in place to improve the accountability of the appointment of directors, the pay (remuneration) of directors and the audit process. Therefore, a listed company should have three sub-committees of the board to cover appointments, remuneration and audit. The accountability process would be ensured by having nonexecutives on each of the sub-committees. The remuneration committee in particular was to be made up wholly or mainly of nonexecutives and the audit committee should have at least three nonexecutives. The audit committee was crucial to the financial accountability of the company as it was to oversee the audit process and act as a primary reference point for the auditor in order to mitigate management influence over the audit. The Committee would also monitor the amount of nonaudit work the auditor was carrying out. The amount of income the auditor had from nonaudit work was a concern for the integrity of the audit process as if it was significant it could allow management to affect the independence of the auditor. For example, if the auditor discovered a discrepancy in the accounts, management could threaten to give the lucrative nonaudit work to another firm of accountants if the auditor revealed it. This type of pressure on the auditor was at the heart of many of the UK corporate collapses in the late 1980s and indeed the later US collapses (Enron and WorldCom) at the beginning of the 21st century.²¹

The majority of the Cadbury Committee recommendations were implemented by the LSE. They were, however, not implemented as enforceable listing rules but rather by the curious mechanism of appending them to the listing rules. Accordingly, there was no penalty for noncompliance but if a company did not comply it had to explain why it had not complied. That explanation was also reviewed by the auditor. In essence, it left it up to companies to decide themselves what to do as no external scrutiny was given to the explanations for noncompliance. The idea being that shareholders would punish noncompliant companies by selling their shares.²²

At the heart of the Cadbury Committee's solution to accountability issues within the listed company was the nonexecutive director. This was not, however, anything new. There had always been a certain disquiet from the 1970s onwards about the ability of British industry to compete globally. The formation of PRONED by the BOE at the beginning of the 1980s to promote the virtues of nonexecutive directors, was in many ways a precursor to the Cadbury Committee. Britain in the early 1980s was in recession and the BOE considered that nonexecutives offered a way forward towards a more accountable management style. The nonexecutive director was supposed to provide an independent, objective check on the executive directors pursuing their own interests.²³

Cadbury, however, left some key issues incomplete. First, it had never actually defined independence and so companies continued to appoint friends of management, ex-managers and managers of other connected companies to the board as nonexecutives. Secondly, it did not specify that nonexecutives be a majority on the main board and allowed executive managers to sit on the sub-boards, which made it very difficult for nonexecutives to be effective. This problem first manifest itself in the continuing upward spiral of directors' pay despite the new mainly nonexecutive remuneration committee.

THE GREENBURY COMMITTEE

By 1995 there was an enormous public outcry at large director pay increases generally but specifically for executives of the privatised utilities. The Prime Minister at the time, John Major, indicated that he disapproved and that the Government might introduce pay constraints.²⁴ Again, the industry response was to set up a committee to examine the issue of directors' remuneration. The Greenbury Committee (1995) Directors' Remuneration, Report of the Study Group identified clearly the issue at the heart of directors' remuneration difficulties.²⁵ That is, that there is an inherent conflict of interest in directors deciding on their own pay. The committee thus recommended:

1. There should be no executives on the remuneration committee because of their inherent conflict of interest and remuneration committees should take account of the wider economic scene inside and outside the company when making executive salary decisions.
2. Share-options should be replaced by long-term (three years) performance related criteria, which are put to the shareholders. Share options were problematic because once granted it was impossible to tell how much they would be worth in the future, leaving the company open to criticism for overpaying its executives. Share price could also be an inappropriate measure of performance both encouraging directors to make short-term share price maximising decisions and giving only a general market view of the company's prospects not the individual director's performance.
3. There should be higher levels of salary disclosure in the annual accounts. This would enable closer scrutiny of directors' salaries.
4. Ideally directors should have one year rolling contracts but two years might be acceptable. This would allow directors to be dismissed easier without having to pay off the remainder of their long-term contracts.

As with Cadbury, the recommendations of the Greenbury Committee were adopted by the LSE in the same nonbinding manner.

While the Greenbury Committee was effective in identifying the problems inherent in remuneration issues, the solutions the committee provided, by using nonexecutive committees to consider directors' pay and wider disclosure of salaries in the accounts, were largely unsuccessful. Directors' pay has continued to climb and has been accelerated by the more open disclosure environment created by the Greenbury recommendations. Once directors were able to access the salary information of their equivalents in other companies, salary negotiations started with a claim to be paid the same if not more than the highest paid director of an equivalent company. Another factor in the continued rise of directors' salaries has been the widespread practice of boardrooms employing salary consultants to advise the remuneration committee. These consultants are not, however, independent of the company and tend to also provide other advice to management which opens them to accusations of conflicts of interests, that is, they are more likely to retain and increase their nonsalary consultancy work if they provide salary advice, which results in higher salaries for management. Additionally, nonexecutives have found it hard to justify lower salaries on the wider economic scene criteria recommended by Greenbury.²⁶

THE HAMPEL COMMITTEE AND THE END OF SELF-REGULATION

The Cadbury Committee had recommended that a committee should be appointed to review the effect of its recommendations and perhaps update them. A committee was formed under the Chairmanship of Sir Ronald Hampel in order to do just that. It reported in January 1998 and its findings mostly consisted of a review of Cadbury and Greenbury.²⁷ Its main recommendations were:

1. That Cadbury, Greenbury and its own recommendations be incorporated into one super code. This became known as the combined code.
2. Nonexecutives should have a leader. This in effect would create three power bases on the board, the Managing Director, the chairman and the leader of the nonexecutives.
3. Institutional investors should consider voting at Annual General Meetings.
4. Remuneration details should be even clearer including hidden costs to the company such as the full cost of pension provision.
5. The committee was of the view that directors should not have to give an opinion on the effectiveness of internal financial controls. This issue arose because of the work of an accountancy committee (the Turnbull committee) that was examining whether directors should have to make some sort of risk assessment statement about the company's internal financial controls. The Turnbull committee disagreed with Hampel when it finally reported in 1999 recommending that directors maintain and have primary responsibility for a system of internal controls to evaluate and deal with both financial and nonfinancial risks (among other things, the risk that your directors may damage the company's reputation through their public statements).²⁸ The LSE implemented the Turnbull recommendations in the same manner as the other corporate governance codes.
6. Sometimes companies can have combined chairmen and managing directors. (Sir Ronald Hampel held such a combined role at ICI Plc at the time of his review.)

The Hampel report also rejected any consideration of two-tiered boards where the executives are supervised by an entire board of nonexecutives as in Germany and as the EU Draft Fifth Directive on Company Law proposed at the time.²⁹ The reason for rejecting the idea was that they found no support for it among those they canvassed. They also rejected compulsory voting for institutional investors. They considered that stakeholders were best served by the board pursuing profit maximising policies and that a permanent committee on corporate governance was unnecessary. In all, the report was more active in rejecting ideas than it was at recommending positive improvements.³⁰ The LSE implemented its recommendations and now the recommendations of Cadbury, Greenbury, Hampel and Turnbull form parts of the Combined Code. Hampel's significance, however, goes beyond its minimal contribution to accountability issues. It was, somewhat ironically for a committee trying to avoid government regulation, spectacularly successful in antagonising the incoming Labour Government and marked a turning point in the ability of industry to regulate corporate governance matters itself. From this point on the state takeover of corporate governance regulation began.

A WORD ON UK CORPORATE THEORY

Before we, however, turn to consider the Government response we need to map out the theoretical landscape that has informed that response. It is fairly well accepted that corporate legal theory has been dominated in the 20th century by US theorists. It is not the case that UK academics were inactive over the 20th century but rather that corporate law as a separate area of study in the UK only emerged in the 1950s.³¹ Even then until recently it remained a largely black letter subject. To the extent that corporate governance was an issue for UK academic lawyers the major contributions were made by employment lawyers.³² By the early 1990s corporate governance, however, was entering mainstream study engaging the interest of political scientists, sociologists and company lawyers.³³

Despite the boom in market-oriented solutions in the 1980s and the undoubted influence on the US debate by UK economists, economic theory has not until very recently been a feature of the UK legal corporate governance debate.³⁴ In general, both the message and the messenger are treated with suspicion. Ireland probably captured the majority view when he stated: '[w]hile it would be churlish not to welcome a development with the potential to broaden the intellectual horizons of academic company law, it is difficult to be effusive about this particular theoretical turn. In the US, for example, the advent of corporate contractualism, buoyed in the 90s by the stock market bubble, the perceived strength of the American economy relative to its European and Japanese rivals and a growing belief in the superiority of Anglo-American governance mechanisms, has been characterised less by a blossoming of new avenues of inquiry than by a process of intellectual closure, albeit one distinguished by the intoxicated enthusiasm of born-again conversion. Indeed, a few sniffs of the contractual font have seen one or two rolling around the theoretical aisles on this side of the Atlantic too, though fortunately we have thus far been spared the boss-eyed inebriation which until recently characterised so much American corporate scholarship. With its slavish faith in the efficacy of 'the market', its yearning completely to privatize the public company and its uncritical commitment to 'shareholder value' as the overriding corporate goal, it is difficult to escape the conclusion that contractual theory has ideological qualities which render it ill-suited to sober, open-minded analysis'.³⁵Historically, moral philosophy rather than economics has been the dominant influence on the UK debate, centring on moral claims for participation and responsibility towards those affected by the actions of corporations namely (stakeholders), that is, the employees, customers, creditors, the environment and the general public.³⁶ These arguments against the primacy UK company law gives to shareholders have been based broadly on three general points. First, corporations are very powerful and therefore have an enormous effect on society. Thus, a narrow accountability to shareholders is insufficient to protect society's interests. Secondly, the assumption that shareholders have a moral claim to primacy by virtue of their property rights is incorrect. If shareholder primacy is to be justified it must be on other grounds. Thirdly, the moral claims of others (stakeholders) either outweigh the shareholders' claims or at are at least equal to them when it comes to allocating primacy.³⁷

These moral claims, however, seemed overwhelmed by the efficiency-based arguments of the government and the private sector in the 1980s.³⁸ In response, by the early 1990s a two-fold approach was emerging in the UK corporate governance literature. First, it was still morally right to include stakeholders in the decision-making process but secondly it could also be justified on competitive grounds. For example, contented employees are more productive, the business entity benefits through lower transaction costs because of higher levels of trust and a greater sense of community, thus ultimately the economy and society benefits.³⁹

The most important UK legal work in the early 1990s was John Parkinson's (1993) Corporate Power and Responsibility: Issues in the Theory of Company Law. Parkinson established in the first chapter the view that shareholders have no moral entitlement to primacy in company law. He then built a strong case for corporate social responsibility. The importance of the work is both in the case Parkinson builds for corporate social responsibility, which is compelling, and that in doing so he actively engages with the neoclassical contractarian model and seems to win, to the palpable relief of many company lawyers all over the UK.

As such much of the UK literature post-1990 just tips a nod at the economic theory before returning to more familiar territory. As Cheffins observes: 'In the UK ... contractarian analysis does not currently constitute the mainstream or orthodox approach at the academic level. Instead, in British interdisciplinary corporate law scholarship, there is a tendency to acknowledge law and economics, cite its limitations and shift to a different theoretical ground. The most typical move UK academics currently make is to discuss the company by reference to its employees and others potentially having a 'stake' in the business, such as suppliers, customers and perhaps society at large. Those adopting a 'stakeholder' perspective often argue that company law should offer explicit protection to the various constituencies associated with companies. This argument is sometimes framed in economic terms, with the logic being that stakeholders need incentives to make firm-specific investments that are allegedly pivotal ingredients of long-term corporate success. In other instances, however, public scrutiny and control of corporate activity is justified on wider grounds. The thinking is that companies are too important to the economy to exist for the benefit of a single constituency, namely the shareholders. Regulation which secures fair treatment for potentially vulnerable stakeholder groups is therefore justified, even if the measures in question may reduce corporate profits'.⁴⁰Things have, however, been changing over the past decade. In particular, the publication of Cheffins work Company Law Theory Structure and Operation, which provides an analysis of UK company law utilising economic theory to provide a conceptual framework has done much to bring economic theory into UK company law analysis.⁴¹ Reform bodies such as the Law Commission have increasingly utilised economic theory in its company law work and recently the Court of Appeal utilised economic analysis of the law in deciding Item Software (UK) Ltd v Fassihi.⁴² It does not, however, by a long way represent a mainstream analysis. As a result, the incoming Labour Government in 1997 brought with it a focus on the moral claims of stakeholders to inclusion in the corporate decision-making process.

THE CORPORATE GOVERNANCE DEBATE: THE GOVERNMENT RESPONSE

The election of the Labour Government in 1997 brought a huge change of attitude to industry regulating itself. While the previous Conservative Government was content to stand by and allow industry to regulate itself, the new Government was not. Within a few years, the BOE was removed as primary financial regulator (it was viewed as being too closely tied to those it regulated) and a raft of self-regulating organisations in the financial sector including the LSE were placed under the control of the new Financial Services Authority (FSA) modelled on the US Securities and Exchange Commission.⁴³

While from the 1980s onwards, the LSE was not entirely free of government regulation, it operated as a self-regulating body within a statutory framework. For example, until May 2000 the LSE was recognised by the Financial Services Act 1986 as carrying out the role of the UK's 'competent authority for listing' with responsibility for admitting securities to listing, making the Listing Rules and policing compliance with them.⁴⁴ Following enactment of the Financial Services and Markets Act 2000, which replaced the Financial Services Act 1986, the LSE no longer operates in this way and the listing function is now carried out by the FSA, which is now the UK Listing Authority. Sections 1–6 of the Financial Services and Markets Act 2000 (FSMA) charges the FSA with four regulatory objectives:

1. maintaining confidence in the financial system;
2. promoting public awareness of the benefits and risks involved in investments;
3. securing the appropriate degree of protection for consumers;
4. reducing financial crime.⁴⁵

This process left the Panel on Takeovers and Mergers as the only remaining significant self-regulatory body in the financial services sector and it has struggled to retain its status ever since.⁴⁶

The corporate governance committees were also within the sights of the incoming administration. Tony Blair had identified himself with the concept of 'stakeholders' all through the 1997 election campaign and Margaret Beckett who became the DTI minister in 1997, was particularly committed to corporate governance reform. She went to great lengths to harass Ronald Hampel and his committee before the final report in 1998 and when she considered his report had failed to provide sufficient reform, the Department of Trade and Industry included corporate governance reform firmly in the remit of its major company law review (CLR).⁴⁷

Thus, the incoming Government set up a flagship general review of company law but with a specific committee chaired by John Parkinson to explore corporate governance reform in particular the issue of stakeholder participation.⁴⁸ This was a sensitive area for the new Socialist Government as it had an uncertain relationship with the business community.⁴⁹ As a result, it did not wish to antagonise the business community much further. For a while things went well and the CLR corporate governance committee explored a wide range of ideas. When Margaret Beckett was, however, replaced by Stephen Byers as DTI minister this freedom was curtailed and the corporate governance committee focused only on 'enlightened shareholder value', a sort of vague encouragement to enlightened managers who might have stakeholder concerns and that was pretty much as it stayed until the final report.⁵⁰

The general CLR Final Report concluded that company law needed to 'think small first' and focus on small private companies as these were the greater in number (being described as 'the engine room of the economy'). The corporate governance section was the one exception to think small first with a recommendation to change the directors' core duty to shareholders to include stakeholders as well. It also recommended a form of corporate constituency reporting to stakeholders.⁵¹ The Government welcomed the CLR Final Report but could find no time for it in its legislative agenda and it was beginning to look as if the Final Report might not ever translate into legislation.

Events, however, overtook matters and caused a reassessment of the Government's priorities. The collapse of US company Enron in late 2001 caused the UK Government to launch a flurry of corporate governance initiatives. Enron had collapsed without warning, and at the heart of the collapse was a conflict of interest in the audit process. The auditors of Enron were earning enormous amounts of money from Enron in nonaudit work, which seemed to allow management to compromise the independence of the auditor and as a result a completely misleading picture of the company's financial position was produced.⁵² The audit committee of Enron also seemed to have failed to do its job. This was worrying as Lord Wakeham, a pillar of the UK establishment and the then chairman of the Press Complaints Commission, was a member of the Enron audit committee. In quick succession, the Government announced that it would find time for a company law bill and that a review of the role of nonexecutives would take place.⁵³

THE WHITE PAPER AND CORPORATE GOVERNANCE

In July 2002, the Government published a White Paper in two volumes, the second volume containing a draft Companies Bill. The White Paper contained two significant proposals within it based on the recommendations of the CLR Final Report that are central to the corporate governance debate. The first was a change in the formulation of directors' duties to include other constituencies if directors felt so inclined — the so-called 'enlightened shareholder value' approach. The second initiative was to introduce a form of corporate constituency reporting contained in an Operating and Financial Review (OFR). That is, the annual report from the directors should include a section on the impact of the company's activities on stakeholders.⁵⁴

ENLIGHTENED SHAREHOLDER VALUE

Schedule 1, para 2 of the draft bill 2002 set out a codification of directors' duties formulated around a primary focus on the shareholders but with a strange formulation that required the directors to take into account 'material factors', which in the notes included stakeholders (employees, local community, environment, suppliers and customers). A great deal of time was then taken up by the DTI trying to define when something was 'material' but eventually in the draft bill attached to the Government's Consultative Document March 2005 the 'enlightened shareholder value' formulation was changed.⁵⁵ The 2005 draft bill as a result contains no mention of 'material factors', instead using the phrase 'where relevant and so far as reasonably practicable'. Additionally, the stakeholder issues had also been taken out of the notes and placed firmly in the section itself. The Companies Act 2006 based on the March 2005 document has passed through the UK Parliament and has largely carried through the same formulation apart from the dropping of 'where relevant' and the addition of a specific recognition that the directors may owe duties to creditors at certain times. It reads as follows:

172 Duty to promote the success of the company

1. A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (among other matters) to
   1. the likely consequences of any decision in the long term,
   2. the interests of the company's employees;
   3. the need to foster the company's business relationships with suppliers, customers and others;
   4. the impact of the company's operations on the community and the environment;
   5. the desirability of the company maintaining a reputation for high standards of business conduct and
   6. the need to act fairly as between members of the company.
2. [Applies to companies other than those limited by shares.]
3. The duty imposed by this section has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company.

This reformulation is stronger than its predecessor from 2002. It is certainly less confusing and seems to more accurately reflect the CLR's intention to encourage or legitimise 'enlightened' directors considering the interests of 'stakeholders' in their decision-making process. It retains the primacy of the shareholders while also compelling directors to consider the company's stakeholders.

THE OFR

The change in the formulation of the directors' core duty was accompanied in the 2002 White Paper by the introduction of an OFR, which would provide a narrative statement on the company's activities as it affects stakeholder constituencies. The Government at the time considered that: 'A reporting requirement in these terms would also be a major benefit for a wider cross-section of a company's stakeholders. The new requirement to report, for example, on material environmental issues would be a major contribution to both corporate social responsibility and sustainable development initiatives. The Government has long recognised, and promoted, the business case for these and sees the OFR as the opportunity for directors to demonstrate their response to this business case'.⁵⁶ The auditors' role was also to increase to encompass the OFR and the Government proposed that overseeing the operation of the OFR would be the responsibility of a new Standards Board — essentially an upgrading of the existing UK Accounting Standards Board.⁵⁷

In March 2005, the Companies Act 1985 (Operating and Financial Review and Directors' Report, etc) Regulations 2005 were approved by Parliament. The Regulations amend the Companies Act 1985 reporting requirements and required directors of quoted companies to prepare an OFR for financial years commencing on or after 1 April 2005. Large and medium-sized nonquoted companies are also covered by the 2005 Regulations as they require an enhanced directors' reporting regime for such companies. Small companies are, however exempt from the enhanced regime. As the DTI guidance explained with regard to the OFR regime: 'Directors are required to provide a balanced and comprehensive analysis consistent with the size and complexity of the business of:

• the business's development and performance during the financial year;
• the company's (or group's) position at the end of the year;
• the main trends and factors underlying the development, performance and position of the company (or group) and which are likely to affect it in the future.

This will include a company's (or group's) objectives, strategies and the key drivers of the business, focusing on more qualitative and forward-looking information than has traditionally been included in annual reports in the past. It must include a description of the resources available to the company (or group), of the principal risks and uncertainties facing the company (or group), and of the capital structure, treasury policies and objectives, and liquidity of the company (or group). In fulfilling these general requirements, directors will need to consider whether it is necessary to provide information on a range of factors that may be relevant to the understanding of the business, including, for example, environment, employee, and social and community issues.⁵⁸

While this was a somewhat watered down version of the CLR recommendations, particularly on the stakeholder reporting mechanism, the OFR has proved extremely controversial. Listed companies, in particular, expressed outrage at the lack of consultation before the Government pushed the OFR Regulations through Parliament. The main concern of listed companies was both the potential increase in personal liability that directors might have for forward-looking financial information and the corporate constituency reporting requirements.⁵⁹ The Government's initial response to this criticism was to emphasise the importance and availability of professional indemnity insurance. In a spectacular volt face however, having pushed the regulations through Parliament during 2005 over these protests, the Chancellor Gordon Brown announced on 28 November 2005 that the OFR would be repealed from 12 January 2006.⁶⁰

This poorly managed process was complicated further by the fact that the European Accounts Modernisation Directive (Directive 2003/51/EC) requires a fair business review (FBR) to take place — the directive being something the Chancellor cannot demand be repealed. As a result the DTI guidance now runs as follows: 'The Business review requires a balanced and comprehensive analysis of the development and performance of the company during the financial year and the position of the company at the end of the year; a description of the principal risks and uncertainties facing the company; and analysis using appropriate financial and non-financial key performance indicators (including those specifically relating to environmental and employee issues). Companies producing a business review must disclose information that is material to understanding the development, performance and position of the company, and the principal risks and uncertainties facing it. This will include information on environmental matters and employees, on the company's policies in these areas and the implementation of those policies. Moreover, key performance indicators must be used where appropriate (including those specifically relating to environmental and employee issues). Similarly, companies producing a business review will need to consider disclosing information on trends and factors affecting the development, performance and position of the business, where this is necessary for a balanced and comprehensive analysis of the development, performance and position of the business to describe the principal risks and uncertainties facing it, or to provide an indication of likely future developments in the business of the company'.⁶¹Additionally, as a result of the repeal of the OFR the nongovernmental organisation Friends of the Earth (FOE) sued the Government because there had been no consultation period before the repeal. The Government then settled out of court with FOE and agreed that a consultation would be held.⁶² The Government has subsequently set out its version (based on the DTI guidance above) of the 'fair business review' in Section 417 of the Companies Act 2006.⁶³

In essence having repealed the OFR, the DTI now says that while an OFR is no longer required there is still a requirement to produce a 'fair business review', which seems very similar to the OFR.

On a more positive note, clearly the change in directors' duty and the OFR/FBR are designed to operate in tandem. As the OFR/FBR seems to encourage directors to report each year on how the company's activities have affected stakeholders it may serve to focus their minds on stakeholder issues. Further, the change in directors' duties will make it easier for those inclined to act in the interests of stakeholders to justify those decisions. In many ways, the report of the CLRSG, the OFR/FBR and the Companies Act 2006 proposed codification of directors' duties are important because, although they may do little to disturb the status quo, they do succeed in legitimising stakeholder issues in the business community.

THE DOUBTFUL SURVIVAL OF THE PANEL ON TAKEOVERS AND MERGERS

As was noted above, the reforms of the self-regulatory environment left the Panel on Takeovers and Mergers in the unenviable position of being one of the last remaining self-regulatory body in the financial services sector. This was mostly due to the Government's reluctance, despite its instincts, to interfere with a very successful and much respected regulator.⁶⁴ The Panel has been in existence since 1968 when the Governor of the BOE and the Chairman of the LSE set it up in reaction to a number of controversial takeovers in which it was felt unfair tactics had been used to the detriment of shareholders. The Panel administers the rules on takeovers called the City Code on Takeovers and Mergers (the Code). The Panel and the Code aims to achieve equality of treatment and opportunity for all shareholders in a takeover bid. The Panel is generally agreed to have been a great success and has become a well-respected part of the UK's financial services architecture. Since 1968 the Panel has handled more than 10,000 cases. While its success has meant that the Government has been reluctant to change its status as part of its domestic reform process, this has not meant that it is safe from EU reforms.⁶⁵

THE TAKEOVERS DIRECTIVE (DIRECTIVE 2004/25/EC OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL OF 21 APRIL 2004 ON TAKEOVER BIDS)

In 1989 the European Commission put forward a draft directive on European takeovers with the aim of harmonising takeover provisions within the EU. The measure was actively encouraged by the UK as there was a long felt resentment that there was a free market for takeovers in the UK but that defensive measures were permitted in most other EU states. Thus, a German company could easily takeover a UK listed company but a UK company could not takeover a large German company. The Draft Thirteenth Directive was largely based on the City Code's provisions and generally prevented the use of takeover defences and so found favour with the UK Government. It did not, however, find favour in many other EU states with France and Germany particularly opposed. Thus for more than a decade little movement occurred at all. By 1999 there seemed to be a more favourable environment for the Directive and it began to be promoted by Austria as well as the UK and Ireland. Eventually in 2001 political agreement was reached on a text of the Draft Directive by the Council of Ministers but it was rejected by the European Parliament. In April 2004 a much compromised directive was eventually agreed.⁶⁶

While the Government has emphasised that the final form of legislation implementing the Directive will attempt to retain the independence of the Panel, the directive requires the establishment of a statutory body which would oversee statutory takeover provisions.⁶⁷ The Companies Act 2006, Part 28, creates just such a statutory body to oversee takeovers in the UK. This is a significant departure from its current and sacred self-regulatory status. The Panel is far from happy with this situation as it considers that the creation of a statutory body overseeing takeover legislation will lead to increased litigation and inflexibility, which will defeat the usefulness of the Panel. There is, however, very little that the Panel can do to change the inevitable.⁶⁸

THE INDEPENDENT REVIEW OF NONEXECUTIVE DIRECTORS (THE HIGGS REVIEW)

In April 2002 as a result of the collapse of Enron and the implication from that collapse that the nonexecutive director was an ineffective monitor of management, the DTI announced a review of the nonexecutive with a view in strengthening the quality, independence and effectiveness of UK nonexecutive directors. The review was carried out by Derek Higgs who consulted widely and produced a final report in January 2003.⁶⁹ Its key recommendations were as follows:

1. At least half the board excluding the chairman should be independent nonexecutive directors.
2. The chairman has a crucial role in the effective operation of the board. As such the position of the chief executive officer and chair should not be combined. Further their individual responsibilities should be defined and the chairman should meet the independence requirements below.
3. The role of the nonexecutive director should cover four areas:
   1. Strategy: Nonexecutive directors should constructively challenge and contribute to the development of strategy.
   2. Performance: Nonexecutive directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance.
   3. Risk: Nonexecutive directors should satisfy themselves that financial information is accurate and that financial controls and systems of risk management are robust and defensible.
   4. People: Nonexecutive directors are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing, and where necessary removing, senior management and in succession planning.
4. Nonexecutives should meet as a group once a year without the chairman or any executives. The annual report should state whether they have done so.
5. A senior independent director should be identified who meets the test of independence set out below. That senior independent director should be a further point of contact for the shareholders.
6. The review set out a definition of independence. A nonexecutive director is considered independent when the board determines that the director is independent in character and judgement and there are no relationships or circumstances which could affect, or appear to affect, the director's judgement. Such relationships and circumstances arise where the director: is or has been an employee of the company; has or had a business relationship with the company; is being paid by the company other than a director's fee and certain other payments; has family ties to the company or its employees; holds cross-directorships or has significant links with other directors through involvement in other companies or bodies; represents a significant shareholder; has served on the board for 10 years.
7. The board should identify in its annual report the nonexecutive directors it determines to be independent. The board should state its reasons if a director is considered to be independent notwithstanding the existence of relationships or circumstances that may appear relevant to its determination.

Listed companies were not particularly happy with the conclusions of the Higgs Review but after quite a lot of difficult negotiations the review's main recommendations were implemented by the LSE through the combined code.

The Higgs review was partly a test of the Government's new approach to corporate governance regulation. Traditionally, this issue would have been left to the industry self-regulatory bodies such as the LSE to form a committee of inquiry as had been done with Cadbury and Greenbury, etc. Higgs is interesting in that the review is partly in the tradition of the previous corporate governance committees in that Derek Higgs is a key insider in the financial services sector in the UK. For example, he sits on a number of boards including the British Land Company plc, Allied Irish Banks, plc and Jones Lang La Salle Inc. He is also a senior adviser in the UK to UBS Warburg, a Director of London Regional Transport, Coventry City Football Club and a member of the Financial Reporting Council. Unlike previous corporate governance committees, however, the appointment of Derek Higgs, his terms of reference and ultimate control of the process was down to the DTI directly. Thus, it marked another significant movement away from self-regulation but interestingly not completely so.

Despite his obvious credentials as a safe pair of hands, the Higgs review fleshes out many of the gaps left by the Cadbury report and its successors. Key among that fleshing out is that it provides detailed guidance on the role of the nonexecutive, the number of independent nonexecutives on a main board and crucially a good definition of independence. For that reason its contribution has, despite the initial difficulties, been welcomed. Its weakness is perhaps that companies get to say who is independent or not according to the Higgs criteria without any additional external scrutiny. Only time will tell as to whether companies will abide by the spirit of the review and attribute definitions of independence honestly.⁷⁰

CONCLUSION

As was noted above the UK until 1997 had a very distinctive form of corporate governance regulation in the financial services sector. Traditionally, regulatory responses were formed by the industry itself and not by the state. As Wilks notes writing in 1997 before the change in regulatory ethos: '[b]ritish economic regulation involves a striking combination of continuity in ideas (or traditions) and innovation in organisations. British traditions of public administration have consistently attached importance to the autonomy of the firm. This has rested on a deep-seated respect for property and the freedom to contract, combined with the legacy of a non-interventionist, minimalist state. In practice this has translated into 'arms length' regulation and has produced a regulatory style, which is based on accommodation, mutual respect and negotiation'.⁷¹ That is now no longer the case and the impact of this change may be more far reaching that has yet been realised. Coffee for example has argued that the self-regulatory nature of the UK and US stock exchanges, the shareholder orientation of their corporate governance system and their subsequent success in becoming two of the worlds major capital markets are all linked. He compares the fortunes of the UK and US markets with that of the Paris Bourse: '[i]n contrast to the New York and London Exchanges, the Paris Bourse over this same period [late 19th and early 20th Century] made little, if any, effort to develop a self-regulatory structure or to upgrade listing or disclosure standards. Why not? The answer seems closely associated with the fact that it operated as a state-administered monopoly whose stockbrokers were formally considered civil servants and who were legally denied the ability to trade as principals for their own account. Facing no competition and composed of members having little incentive to promote or enhance its reputational capital, the Paris Bourse did not innovate and fell behind the London Stock Exchange. The intrusive role of state regulation, which discouraged private self-regulatory initiatives, appears to have a factor in its competitive decline'.⁷² Cheffins, writing specifically about the UK and its corporate governance system similarly attributes the success of the UK to the LSE's regulatory role free from state interference.⁷³ Of course, both Coffee and Cheffins are writing in the context of whether state-led pro-shareholder legal reforms can bring about a dispersed shareholder system similar to the UK and the US.⁷⁴ In the UK, such a system is already in place so the context is not quite the same. The UK corporate governance system is nonetheless attributable to some extent, according to Coffee, and Cheffins to its self-regulatory institutions. Others such as Frankel⁷⁵ would along similar lines emphasise the essential value of state/private sector trust in the success of the UK and US financial markets. Thus, the self-regulatory system and its success was an indicator of a high level of trust between state and industry. In turn, the decline of the self-regulatory system may be indicative of a decline in trust between the state and industry to the detriment of both.

On one view the removal of the self-regulatory system may not be significant if the state simply carries out the same role. Indeed, there are some signs that the UK Government recognises it must be careful both in the way it handled the Higgs Review and that it is discussing reforming the FSA to take a lighter touch.⁷⁶ The other very real possibility is, however, that the loss of the self-regulatory system indicates a loss of the high levels of state/private sector trust, which have traditionally fueled the innovative nature of the UK's corporate governance regime in the same way that caused the Paris Bourse to fall behind in the 19th and early 20th century. If that occurs there may indeed then be much to regret.

References

References and Notes

1. Hunt, B. C. (1936). The Development of the Business Corporation in England 1800–1867', Harvard University Press, Cambridge, MA.
2. Channon, D. (1973). The Strategy and Structure of British Enterprise', Palgrave, London, 35; Freyer, T. (1992) Regulating Big Business Antitrust in Great Britain and America 1880–1990, Cambridge University Press, Cambridge, 271 and Chandler, A. (1990) Scale and Scope: The Dynamics of Industrial Capitalism, Harvard University Press, Cambridge, MA.
3. Gamble, A. and Kelly, G. (2001) 'Shareholder value and the stakeholder debate in the UK', Corporate Governance, 9(110), 112.
4. Hadden, T. (1977). Company Law and Capitalism', Weidenfeld & Nicolson, London.
5. Bullock, L. A. (1977) 'Report of the committee of inquiry on industrial democracy', HMSO, London.
6. This industry view did not last long. See Clift, B., Gamble, A. and Harris M. (2000) 'Social democracy and the company in the UK', in Parkinson, J., Gamble, A. and Kelly, G. (eds) The Political Economy of the Company, Hart, Oxford.
7. Dignam, A. (2000) 'Exporting corporate governance: UK regulatory systems in a global economy', Company Lawyer, 21, 70.
8. Beesley, M. and Littlechild, S. (1992) 'The regulation of privatised monopolies in the United Kingdom', in Beesley, M. (ed) Privatisation, Regulation and Deregulation', Routledge, London.
9. Parkinson, J. (1993). Corporate Power and Responsibility: Issues in the Theory of Company Law, OUP, Oxford.
10. Rentoul, J. (1987) 'Privatisation: the case against', in Neuberger, J. (ed) Privatisation: Fair Shares for all or Selling the Family Silver? Macmillan, London, 2; See also Arthurs, A. (1985) 'Industrial relations in the civil service: Beyond GCHQ', Industrial Relations Journal, 16, 26; Ewing, K. (1982) 'Industrial action: Another step in the "right" direction' The Industrial Law Journal, 11, 209.
11. This may be attributable to the higher levels of institutional investor shareholdings in the UK. See Short, H., Zhang, H. and Keasey K. (2002) 'The link between dividend policy and institutional ownership', Journal of Corporate Finance8, 105.
12. In effect companies seemed to be adopting a neo-classical model where discretionary surplus cash flow is distributed immediately to the shareholders Shleifer A. and Vishny R. (1998) 'Breach of trust in hostile takeovers', in Auerbach (ed) Corporate, Takeovers Causes and Consequences, Chicago University Press, Chicago. On neo-classical analysis see Jensen and Meckling (1976) 'Theory of the firm: Managerial behaviour, agency costs, and ownership structure' Journal of Financial Economics, 3, 305.
13. See Parkinson, ref. 9 above at 201.
14. Primarily the collapses of BCCI, Polly Peck and Maxwell companies through massive audit corruption very similar to the later collapses in the US of Enron and WorldCom. See Financial Times 2nd October, 1990, 27, 25th October, 1990, 1, 24, 9th November, 1991, at 1 6th December 1991, 21.
15. The combined effect of these factors was epitonised by the popularity of the book in the mid-1990s. Hutton, W. (1996) The State We're In: Why Britain Is in Crisis and How to Overcome It, Vintage, London.
16. Parkinson, J. and Kelly, G. (1999) 'The combined code on corporate governance', Political Quarterly, 70(1), 101–107. | Article |
17. See Pettet, B. (2001) Company Law, Longman, Harlow, 203. The later collapse of ENRON and Worldcom in the US had starling similarities to these earlier UK collapses.
18. The BOE is a good example of how the state and the private sector in the UK have traditionally interacted in the financial services sector. The BOE was a private body set up by the banking industry to represent the views of the industry to government and to act as a lender of last resort. It was nationalized after the Second World War but still continued to represent the views of the banking industry to government viewing itself as an industry body rather than a state body. See Fforde, J. (1992) The Bank of England and Public Policy, 1941–1958, Cambridge University Press, Cambridge; Cranston, R. (1989) '"Money will not manage itself..." An outline of banking and financial regulation', in Kingsford-Smith, D.A. (ed) Current Developments in Banking and Finance, Stevens and Son, London, 45–61.
19. Committee on the Financial Aspects of Corporate Governance, Report of the Committee on the Financial Aspects of Corporate Governance, Gee and Co, London, 1992 (hereafter Cadbury Report).
20. The academic literature on the Cadbury Committee is extensive see for example Finch, V. (1992) 'Board performance and Cadbury on corporate governance', Journal of Business Law, November, 581; Riley, C. (1994) 'Controlling corporate management: UK and US initiatives', Legal Studies 14(2), 244; Maw, N., Lane, P., Craig-Cooper, M. (1994) Maw on Corporate Governance, Dartmouth, Aldershot.
21. See Financial Times: http://specials.ft.com/enron/ (13 September, 2006).
22. See Finch and Riley, ref. 20 above.
23. The role of the nonexecutive was later fleshed out by the Higgs Review, see Higgs Review, below n63, and Department of Trade and Industry, Corporate Governance: http://www.dti.gov.uk/bbf/corpgovernance/higgs-tyson/page23342.html (13th September, 2006). See also the Tyson Report which explains the background to PRONED at Department of Trade and Industry, Corporate Governance: http://www.dti.gov.uk/bbf/corpgovernance/higgs-tyson/page23342.html (13th September, 2006).
24. Wighton, D. (1995) 'Protesters aim at the board — Even John Major backs dissent at the agm', Financial Times, 27 May, 10.
25. Study Group on Directors Remuneration, Directors Remuneration: Report of a Study Group Chaired by Sir Richard Greenbury, Gee and Co, London, 1995 (hereafter Greenbury Report).
26. Eventually the Government introduced the Directors' Remuneration Reporting Regulations 2002. The regulations require that directors' salaries be put to the shareholders for an advisory vote. The vote is nonbinding but a negative vote is a powerful signal to the remuneration committee that they got things very wrong. On executive pay in the UK see Guardian Unlimited, British FTSE Directors' Pay Rises by Almost 20 per cent: http://www.guardian.co.uk/executivepay/story/0,1634781,00.html (13th September, 2006).
27. Committee on Corporate Governance, Report of the Committee on Corporate Governance (London: Gee and Co, 1997) (hereafer Hampel Report).
28. Report available at The Institute of Chartered Accountants: http://www.icaew.co.uk/ (16th September, 2006).
29. Dine, J. and Du Plessis, J. J. (1997) 'The fate of the draft fifth directive on company law: Accommodation instead of harmonisation', Journal of Business Law, 23, 23–47.
30. Riley, C. (1997) 'Whither corporate governance', Journal of the Society for Advanced Legal Studies, 1, 16; Dignam, A. (1998) 'A principled approach to self-regulation? The Report of the Hampel Committee on Corporate Governance', Company Lawyer, 19(5), 140–154.
31. Cheffins, B. (2004). The Trajectory of Corporate Scholarship', Cambridge University Press, Cambridge; Wheeler, S. (1995) 'Introduction', in Wheeler, S. (ed) A Reader on the Law of the Business Enterprise, Oxford University Press, Oxford.
32. See for example Wedderburn (1993) 'Companies and employees: Common law or social dimension?' Law Quarterly Review, 109, 220; Wedderburn (1982) 'The social responsibilities of companies', MULR15, 4.
33. See Wheeler, ref. 31 above.
34. On the development of law and economic theory in the corporate context seeManne (1987) 'Intellectual styles and the evolution of American corporate law', in Radnitzky, G. and Bernholz, P. (eds) Economic Imperialism: The Economic Approach Applied Outside the Field of Economics, Paragon House Publishers, New York, pp. 219–241.
35. Ireland, P. (2003) 'Property and contract in contemporary corporate theory', Legal Studies, 23, 453. | Article |
36. See Wheeler, ref. 31 above.
37. On these claims see Parkinson, ref. 9 above.
38. Rentoul, ref. 10 above.
39. There were many strands to this stakeholder view see for example Etzioni, A. (1993) The Spirit of Community — Rights, Responsibilities and the Communitarian Agenda, Touchstone, New York; Sen, A. (1993) 'Does business ethics make economic sense?' in Minus P.M. (ed), The Ethics of Business in a Global Economy. Issues in Business Ethics Series, vol. 4, Kluwer Academic, Dordrecht, 53–66; Giddens, A. (1994) 'Beyond Left and Right: The future of Radical Politics' Polity Press, London; Hutton, W. (1995) 'The 30-30-40 Society', Regional Studies, 29(8), 719–721; Parkinson, ref. 9 above.
40. Cheffins, B. (2003) 'Corporations', in The Oxford Handbook of Legal Studies', Oxford University Press, Oxford, at ch. 23.
41. Cheffins, B. (1997). Company Law Theory Structure and Operation', Oxford University Press, Oxford.
42. Item Software (UK) Ltd v Fassihi (2004) EWCA Civ 1244.
43. Mac Neil, I. G. (1999) 'The future for financial services regulation: the Financial Services and Markets Bill', Mod LR, 6(5), 725–743.
44. Financial Services Act (1986) s142(6).
45. On the change see 'Special: A Ragbag of Reform', The Economist (3rd March, 2001) 358(8211), 63; Rosling, A. (2000) 'FSA takes over LSE responsibility as UK listing authority', International Financial Law Review, 19(6), 13–14.
46. The Panels fight for survival is discussed below.
47. See Dignam, ref. 30 above.
48. On the reform process see Pettet, B. (1998) 'Towards a competitive company law', Company Lawyer, 19, 134; Department of Trade and Industry: http://www.dti.gov.uk/bbf/co-law-reform-bill/clr-review/page22794.html (16th September, 2006).
49. One of its first high profile acts was to introduce a retrospective tax on the privatised former state companies. This was not something that instilled confidence in the business community. See Irving, M. (1998) 'New Deal comes up trumps', The Guardian (19th December, 1998) 12.
50. See DTI hyperlink, ref. 48 above.
51. These reforms are discussed below.
52. This was a very similar situation to the UK collapses in the late 1980s that had spurred so much corporate governance reform in the UK. On the collapse of Enron see Financial Times: http://specials.ft.com/enron/ (16th September, 2006).
53. The US response to Enron, etc also had effects on listed UK companies. The Sarbanes–Oxley Act became law in the United States on 30th July, 2002 in response to the Enron and Worldcom scandals and applies to all US and non-US companies that are required to file periodic reports with the US Securities and Exchange Commission. As a result, it introduced much more extensive reporting requirements for UK companies listed on any US stock exchange or with registered debt securities in the United States (listed or otherwise). It also applied to UK subsidiaries of US companies and UK companies with 300 or more US shareholders. The extra compliance costs of Sarbanes–Oxley, estimated at $5m for small companies and between $30 and 40m per year for larger companies, has led to serious discussion within dual UK/US listed companies of delisting in the United States. Other UK companies without dual listings but with more than 300 US shareholders have been buying out the US shareholders to escape the compliance costs.
54. See DTI hyperlink, ref. 48 above.
55. See DTI hyperlink, ref. 48 above.
56. White Paper on Company Law (2002) Vol. I, para 4.32.
57. White Paper on Company Law (2002) Vol. I, paras 4.28–5.24.
58. Department of Trade and Industry, DTI Guidance on the OFR and Changes to the Directors' Report (January 2005): http://www.dti.gov.uk/bbf/financial-reporting/business-reporting/page21339.html (16th September, 2006).
59. Plender, J. (2005) 'Companies facing regulatory fatigue: The proliferation of regulations in the wake of corporate scandals is leading to frustration', Financial Times, (10th March, 2005) 11.
60. See the Companies Act 1985 (Operating and Financial Review) (Repeal) Regulations 2005, SI 2005/3442; Jopson B. (2006) 'Chancellor's abolition of reporting rules fuels discontent', Financial Times (28th January 2006) 2.
61. Department of Trade and Industry: http://www.dti.gov.uk/bbf/financial-reporting/business-reporting/page21339.html (16th September, 2006).
62. See Spinwatch, CSR: Friends of the Earth win high-profile victory: http://www.spinwatch.org/modules.php?name=News&file=article&sid=245 (16th September, 2006).
63. See DTI hyperlink, above n58.
64. On the governments view of the Panel see Financial Services Authority, The FSA and the Panel on Takeovers and Mergers: http://www.fsa.gov.uk/Pages/Library/Communication/PR/2000/078.shtml (16th September, 2006).
65. On the background to this process see The Panel on Takeovers and Mergers, Consultation Paper —The Implementation of the Takeovers Directive: http://www.thetakeoverpanel.org.uk/new/consultation/DATA//PCP%20200505.pdf (16th September, 2006).
66. Clarke, B. (2006) 'European Union Articles 9 and 11 of the takeover Directive (2004/25) and the market for corporate control', Journal of Business Law, 355, 374.
67. See Department of Trade and Industry, Company Law Implementation of the European Directive on Takeover Bids: A Consultative Document: http://www.dti.gov.uk/files/file10384.pdf (17th September, 2006).
68. On the Government's plan see Department of Trade and Industry, Company Law Reform: http://www.dti.gov.uk/bbf/co-law-reform-bill/index.html (17th September, 2006) at para 3.6.
69. Department of Trade and Industry, Higgs, D. Review of the Role and Effectiveness of Non-Executive Directors, Department of Trade and Industry, London (2003): http://www.dti.gov.uk/bbf/corp-governance/higgs-tyson/page23342.html (17th September, 2006).
70. See also the Tyson Report 2003 which followed up on some of the Higgs Recommendations as to implementation at Department of Trade and Industry: http://www.dti.gov.uk/bbf/corp-governance/higgs-tyson/page23342.html (16th September, 2006).
71. Wilks, S. (1997) 'The amoral corporation and British utility regulation', New Political Economy, 2(2), 280.
72. Coffee, J. (2001) 'The rise of dispersed ownership: The roles of law and the state in the separation of ownership and control', Yale Law Journal, 111, 1 at 25–29.
73. Does Law Matter?: The Separation of Ownership and Control in the United Kingdom, ESRC Centre for Business Research, University of Cambridge Working paper no. 172 (2000): http://papers.ssrn.com/sol3/papers.cfm?abstract_id=24556 (16 Sept 2006); see also Fishman, J.J. (1993) The Transformation of Threadneedle Street, 23–24.
74. La Porta, R., Lopez-de-Silanes, F. and Shleifer, A. (1999) 'Corporate ownership around the world', Journal of Finance, 54, 493.
75. Frankel, T. (2005). Trust and Honesty: America's Business Culture at a Crossroad, Oxford University Press, New York.
76. The Economist (2005) 'British financial regulation: Take a bow', 376 (8436), 75, 23rd July.