Cover stories

A D&O consideration

That was the 1960s. What do the rebellious and radical do nowadays? Some, as I discovered on my latest superficial consumerist binge, hand out leaflets intensely on Oxford Street, asking companies to abide by the law of the much loathed capitalist state and avoid "aggressive" tax avoidance strategies.

One could argue it's just all a bit disappointing, a bit lettuce eating, a bit non-alcoholic. Where's all the fire and frenzied carnivorousness of earlier days gone? Where's all the sheer, exuberant, irresponsibility? Whereas Che Guevara would have been encouraging you to do 100 on a 70MPH motorway, today's revolutionaries seem to be encouraging people – mainly company directors – to go a mere 65.

Possibly unbeknown to these mainly Apple-product wearing rebels (boringly, conformingly, NYSE listed and with a distinctly large market cap of US$ 397 billion) they are doing an admirable job of arguing for directors to comply with Section 172 of the 2006 Companies Act – a section dear to the heart of many a D&O underwriter and, indeed, broker.

As we all know Section 172 codifies the duties of directors in the UK. In doing so Parliament struck a balance between making directors solely responsible for making as much money as possible for shareholders and making them responsible for everything in sight.

Directors, so the section states, should have an approach that would "be most likely to promote the success of the company for the benefit of its members as a whole" while simultaneously looking out for the "likely consequences of any decisions in the long term" and taking into consideration "the impact of the company's operations on the community and the environment" – which, when it comes to taxation minimisation, may not be something directors have thought enough about.

There have been arguments that whereas most directors concentrate on the first part of their duties, when it comes to taxation, they haven't been concentrating so much on the second. The law is designed to rule out arguments of the sort which say "We thought about the community etc (fill in the blank) but actually in minimising our tax burden we're simply thinking primarily about our members".

There is nothing in the law that encourages such a statement. If anything it encourages the reverse. Put this together with the idea that, when it comes to board election and other matters, the UK is friendlier to shareholders than the US, we have the interesting thought that taxation strategies may become a directors' liability issue.

Yes, I agree there hasn't been a flood of circumstances on this...yet. I also agree that underwriters, lawyers etc have been shouting for a long time about potential exposures that have not materialised – although investigations and fines are multiplying at a large rate. However, this time, the Zeitgeist may be changing. Witness the obvious banker bashing, Vince Cable's Old Testament murmurings on making negligent directors pay for the debts of their failed companies, the Cameron/Clegg/Milliband bleatings on not rewarding failure, but most potently think about the public anger stirred up mainly by the earnest, wannabee rebels in Oxford Street. They could be much more of a threat. After all, to their own possible shame, they've got the law on their side.

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