Half the Truth – Directors’ Remuneration and Government Consultations

I need not mention the economic, political, and social outrage that has aroused as a result of what has been termed as “excessive remuneration” of directors against the backdrop of a catastrophic global financial crisis and the well-known scandals that have usurped public trust from some of the most vital organisations to a capitalist society – such mentions have been adequately made within this very blog and across the media with great focus. It it appropriate, however, to refer readers back to the September 2011 Department for Business Innovation and Skills (BIS) consultation on executive remuneration which highlighted a problems with both the excessive levels of remuneration and a transparency deficit within the current pay-setting process.

Against this very backdrop of a deficit in transparency, the question that has to be asked is how such a fundamental reform, hoping to disarm shareholders of the advisory remuneration report and arm them instead with a binding vote, can be expected to succeed and prove its efficiency if it is initiated from an only partly-truthful consultation. The consultation cited Cai and Walkling (Journal of Financial and Quantitative Analysis, 2009, 299) as authority that where shareholders had actively contested a remuneration report with the use of their advisory vote there was a general material reduction in the levels of future remuneration within the company. However, what evidences a lack of transparency or manipulation of the full picture is that the consultation makes no mention of findings by the same authors (in the same article) that such a reduction was meaningless in a mission aimed at tackling excessive remuneration because shareholders were generally not targeting those companies where directors would be perceived to have excessive levels of remuneration but were in fact targeting large companies as wholesale practice. Such a finding by Cai and Walkling significantly dilutes the proposition that shareholders are appropriate arbiters of excessive remuneration.

As the Enterprise and Regulatory Reform Bill (2012), which contained the proposal of giving shareholders a binding vote, sees the writing of draft legislation on the matter; the level of concern within the media and academic field has not been alleviated. Numerous extensive studies have highlighted the lack of shareholder activism for various reasons, including dispersed ownership and the fact that certain shareholders wear two hats (often providing services to a company) and feel shareholder activism could jeopardise other interests, it would seem the Government has not given such findings that weighting the deserve.

Where is a reform based on half-disclosed truths likely to head but trouble?


Update for Postgraduate LLM’s at Sussex

Dear all (apologies to those not interested),

following a recent Teaching and Learning Meeting, there were a few things I thought you may be interested in knowing – they seemed too long for a Facebook post so I’ve tried to provide a breakdown here.

Printing from your laptop – the technology and software is now in place to print directly from your laptop to certain “charged” printers within the University. I believe this covers all the usual hotspots – inc. library – equally the normal process of using your printing account still applies. The following link has useful information and guidance on how to set this up: http://www.sussex.ac.uk/its/news/story?anchor=1335879671&utm_source=twitterfeed&utm_medium=twitter


New design library catalogue – the library catalogue has been given a revamp and I’ve been given a little bit of training to pass on to you. To access the new catalogue follow these steps: Log onto Sussex Direct ?> Library tab select Library Resources >> Select Library Catalogue >> Select the “new design” link from the preamble that then appears. The new catalogue is incredibly useful and, although it is still being updated it can still be used. It has features that allow you to save your searches, look at digital copies of books where available, various word clouds, links to reading lists, and much, much more. Great for anyone writing a dissertation needing a library of their own! 

E-submission – just in case anyone was hoping they wouldn’t have to queue to surrender their dissertations in September, don’t be fooled. E-submission is not yet in place and is unlikely to be in place any time during our stay.

Beyond that, enjoy the bizarre weather patterns and I hope to see you all at the garden party! 

Really Reggae Sauce?

Avid watchers of the investment reality series Dragons’ Den will easily recall the scene where a charming Jamaican individual, going by theImage name of ‘Levi Roots’, ascended upon the dragons with a guitar singing his own catchy song about nothing other than ‘his grandmother’s secret recipe’ condiment – Reggae Reggae Sauce. The light-hearted pitch was quickly followed by a £50,000 investment by Peter Jones and Theo Paphitis. However, proceedings in the High Court have unveiled that the truth is a lot less romantic.

Proceedings in the case entitled Bailey v Graham [2011] EWHC 3098 (Ch) the claimants, Bailey and Williams, claimed that Graham (Levi Roots) had breached an oral agreement reached between the parties whereby Bailey (who claims to have been the original founder of the recipe) would jointly exploit the commercial prospects of the condiment with Graham and Williams. Equally, Bailey alleged that, failing a finding of a contractual agreement, it could be alleged that Graham had breached his duty of confidence by disclosing confidential information. 

Interestingly, a significant majority of Judge Pelling QC’s evidence consists of an analysis of the creditibility of the claimants and defendants evidence – frankly, a useful read for any witnesses called upon to give evidence in court. The claimants’ credibility is called into question in cross-examination conducted by Ian Glen QC ( of 5 King’s Bench Walk) and Mark Vanhegan QC (of 11 South Square). The cross-examination revealed discrepancies in the witness statements which, along with being described as evasive, Judge Pelling QC referred to it as evidence which could not safely be accepted by the court.

The credibility of the defendant was equally questioned by the High Court Judge. Several circumstances of concern led the Judge to conclude that Graham’s evidence could also not be accepted at face value. Firstly, Graham had boldly claimed in his pitch in front of the millionaire investors that the recipe for Reggae Reggae Sauce could be traced back to the singer song-writer’s grandmother – which the proceedings revealed was untrue. An attempt to mitigate this finding by Graham that this amounted to nothing more than a marketing ploy was rejected by Judge Pelling, who opined that marketing may allow for exaggerations of what may legitimately be claimed but did not stretch to what could be dubbed as fraudulent misrepresentation (para 34). Delivering another damning blow to Graham’s credibility was the role of his previous convictions – and a relatively surprising list at that. Graham was arrested for burglary as a juvenile, something Judge Pelling thought could not impact his credibility due to the amount of time that had lapsed; however, more recent convictions for assaulting a police officer, conspiring to supply heroine, and unlawful possession of a firearm in his later years, for which he served a substantial term in prison, could not be ignored in the Judge’s opinion. 

Having decided that the evidence of both the claimants and the defendant was to be taken with caution (unless it could be admitted or corroborated), Judge Pelling went on to evaluate the credibility of various witnesses who gave evidence. 

In dismissing the claim, Judge Pelling concluded that the claimants had not proved on the balance of probabilities that an agreement to exploit the commercial prospects of the condiment had been entered into. This was backed by a lack of documented evidence as to either the agreement or the recipe which Bailey claims to have founded. Equally, in dismissing the claim for breach of confidence, Judge Pelling ruled that the information provided was not sufficiently certain and open to interpretation by chefs. 

Whilst Graham may have breathed a sigh of relief to learn the claim had been dismissed, preventing Bailey and Williams from having a proportion of equity in the holding company, which holds the licence for the sauce, transferred into their name, the damage done by virtue of the bad publicity in revealing the false representation on Dragons’ Den and his previous convictions could have equally damaging consequences. 

‘Fat Cat’ Pay – Part 1

So, as my dissertation is focussed solely on what has been termed ‘fat-cat’ pay I thought it appropriate to kick-off proceedings with a relatively short and, at this stage, fairly low-level-researched ‘rant’ on w
Unless you’ve resided under a rock recently it will not be breaking news that shareholders and employees alike have greatly condemned the astronomical sums of money that have been handed to senior executives figures of public limited companies (PLCs). The elevated bad publicity of this situation is owed to two factors – low shareholder dividends and employees at the bottom end of the pay scale losing their jobs as PLCs try desperately to cut the operational costs and deal with tough economic times.hat I feel to be the issues.

We’ve seen shareholder revolts for several companies, including market giants Aviva and Barclays. But, this is where the problem begins. The current legal position allows for shareholders to vote against remuneration reports of directors but this vote is not binding. Effectively, this allows directors to ignore any concerns that directors, technically owners of the business that the said directors control, with regards to the level of remuneration.

The UK Department for Business Innovation and Skills has declared that there is potential in making shareholder votes binding. However, is this really going to work? Studies by various scholars and economists, including Martin Conyon, suggest that the shareholder patterns of many UK PLCs are not suited to such binding votes Most shareholders are here today, gone tomorrow, and back the following Monday. Shareholders is in the majority about driving personal profit as opposed to owning shares in a particular organisation. Would a more appropriate course of action be to give a stronger say to employees of PLCS, individuals with a stronger and more permanent connection to the organisation.

Also, is it right to condemn the vast levels of pay? A century ago, in the days of Re Brazilian Rubber Plantations, directors were seen as mere fund raisers with few duties beyond gathering shareholder capital. The situation is very different today, in a global economy with competition for skill being fierce. Equally, shareholders duties have expanded vastly – stakeholders are now made up of not only shareholders, but creditors, employees, the environment and many other constituents. Equally, the disqualification regime, under the Company Directors Disqualification Act 1986, presents a further danger to directors which, without the high-level rewards of vast remuneration, may deter many talented individuals from acting as directors of PLCs.

Stormtroopers in The Supreme Court

The Supreme Court of the United Kingdom, successor of the world-renowned House of Lords, is the highest court of the land, it passes judgement on only matters of the highest legal importance. Cases heard within these walls call upon counsel of the highest caliber and, in turn, are heard by some of the most educated and respected ears within the legal world. Not a place for a “Micky Mouse dispute”, then.

Therefore, as fans would no doubt agree, the dispute over Stormtrooper helmet design between Lucasfilms and Shepperton Design Studios could be litigated in no other court.

And, who better to represent George Lucas’s Lucasfilm than he who is described as one of the most sought after advocates in the country, Jonathan Sumption QC (Brick Court Chambers). Sumption’s curriculum vitae would make any barrister green with envy, he’s representing billionaire tycoon Roman Abramovich in an ongoing dispute, and is off to sit as a judge in the Supreme Court, need I say more?

So, why the battle? Shepperton Design Studios (hereinafter “SDS”) is an unauthorised manufacturer of replica Star Wars memorabilia, including the Stormtrooper helmet. The dispute in fact began in 2006 in the U.S. when Lucasfilm filed a claim that SDS has infringed a copyright by manufacturing these helmets and further claimed that SDS had made false claims relating to the moulds and their status – SDS did not defend the decision and awarded Lucasfilm $20 million. The case was argued in the High Court of Justice to ensure the U.S. decision would have effect in the English jurisdiction.

It was assumed the Supreme Court case would be a sure win for Lucasfilm after it had been thrown out by Mr Justice Mann in the High Court, after all, it was in the capable hands of Jonathan Sumption QC. Sadly not, the Supreme Court in 2011 held that the helmet design was not a work of art or sculpture but indeed an industrial prop, shortening the length of copyright protection to 15 years after it was first marketed.   The case was pivotal around SDS’s claim that the helmet was an industrial design, as opposed to a work of art, and as such not bound by Lucasfilm’s copyright.

As it has been dubbed, on this occasion, “[t]he force is not with Sumption”. http://www.thelawyer.com/the-force-is-not-with-sumption/1008774.article

Death Penalty for Hosni Mubarak?

Until his resignation on the 11th of February 2011 Hosni Mubarak had worn Egypt’s Presidential shoes for near 30 years. His first term as President began after the assassination of Former President Anwar El Sadat in 1981, prior to which Muba

rak was Vice President. However, now standing trial in a temporary court in the Police Academy in North Cairo, Mubarak, along with his two sons, a senior Minister, and six senior police officials, faces the prospect of being sentenced to the death penalty for ordering the killing of protesters during the revolution in 2011 that demanded his resignation.

Mubarak’s rule as President makes for a relatively eventful calendar. Among the main highlights were Egypt being allowed to re-join the Arab League following its removal through a peace treaty made by Sadat with Israel; and Egypt’s toke

n participation in the 1991 Gulf War where the U.S. commended its participation for inducing other Arab countries to join the plight for liberalising Kuwait.
o his government ministers. However, not all of Mubarak’s rule has been sprinkled with commendation. He has received criticism for his military background dominating his governing strategy, writer Tarek Osman links Mubarak’s former military career in the air force and his witnessing of Sadat’s assassination as the reason Mubarak focused the early years of his ruling on expanding the security services, and Mubarak has also been criticised dearly on several occasions for choosing the advice of his military chiefs as opposed t

The revolution in 2011 was a tense and uneasy affairs, as one expe

cts a resolution to be. Mubarak refused to resign but promised not to stand for election at the next term in September, with this came comments of constitutional change. Yet, none of this seemed to satisfy protesters who still demanded he leave. Protests outside the presidential palace turned violent between pro and anti-Mubarak Egyptians. It is during this time it is claimed that Mubarak authorised (or ordered) his former interior minister, Habib el-Adly (also standing trial) to use live ammunition to deter protesters. To date Mubarak has pleaded “not guilty” to his allegations on trials broadcast on Egyptian state TV. Prosecutor, Mustafa Khatar, claims it is impossible for Mubarak to have been unaware of of the killings on
protesters that became global news. On the prospect of Mubarak being sentenced to death if found guilty it is apt to end with the words of the prosecutor: “Retribution is the solution. Any fair judge must issue a death sentence for these defendants,” (Khatar, final day of prosecution opening statement).

Iran – Oil Embargo

Embargos on Iranian oil are not a new phenomenon, the Clinton Administration enacted the Iran-Libya Sanctions Act (now Iran Sanctions Act) in 1995 (ISA) following discontent regarding Iran’s stepped up nuclear program and support of terrorist organisations such as Hizbollah and Hamas. The US has recently accused Iran of plotting to assassinate a senior Saudi diplomat in Washington and taken trade sanctions against Iran’s Central Bank. As of the end of 2011 Europe has added to the count of countries no longer deeming it acceptable to trade in matters such as oil with Iran – a measure which is likely to be passed by the end of this first month of 2012.

Iran’s nuclear programme was established in the 1950s and until relatively recently continued to recieve support from both the U.S. and Europe, major players in the area, though not oil-rich themselves. The European embargo came after concerns were raised following a report released in November 2011 claiming Iran was developing and researching for nuclear weapons capabilities. Notably, as Iran is not a member of the World Trade Organisation, it merely began accession negotiations in earlier years, the legality of the measure in the WTO is not an issue.

Is the measure likely to be effective? Whether an embargo will prevent the controverisial is a matter of speculation. However, the impact of the trade sanction shall in the least be persuasive. Iran relies on oil for over 20% of its GDP, furthermore, during the aftermath of the ISA it was noted that the onshore oil plants within Iran were in great need of investment in order to modernise the equipment and as such further strains on an alreadt “needy” sector will not be welcomed, and may even stir up some political unrest within Iran.

The consequences: Proposers of the embargo have said that oil supply is unlikely to suffer due to the number of oil-rich country who also oppose Iranian nuclear who would be willing to supply oil to Europe in order to hit Iran further. Complications are already immenent as Italy and Greece, two very vulnerable European countries, are major buyers of Iranian oil and this embargo could further damage growth if oil levels sink and prices rocket. Iranian defense officials have targetted Western ships and to that extent have passed a bill requiring Western ships to seek permission from Tehran when travelling through the Strait of Hormuz, a key route for oil cargo ships. The U.S. has not commented further from saying it is fighting to keep international waters free.

There is no doubt that trade sanctions are amongt the most effective tool for encouraging certain activity on an international level, however, in the light of recent retaliations to Western action, it remains to be seen whether this issue will be clear cut or lead to a potentially devastating diplomatic battle.