Guernsey expects that every director will do their duties

Guernsey expects that every director will do their duties Autumn Seminar Series 12th October 2010

SPEAKER 1 Wayne Atkinson Collas Day

What are the duties? What aren’t the duties? Some areas of concern Protecting against breach of duty claims as a Director Introduction

Duties don’t just apply to “directors” • Shadow Directors • De facto Directors • Alternate Directors

What are a director’s duties? • Duties owed by a director to the company • English duties expressly codified under Companies Act 2006 • Include acting within powers; promoting success of the company; exercising independent judgment; exercising reasonable care, skill and diligence; avoiding conflicts of interest; not accepting benefits from third parties; declaring interests in proposed transactions/arrangements • No defined duties under the Law • Directors are fiduciaries: owe fiduciary duties to the company • Based on common law concepts • Similar to duties owed by trustees

Powers and Duties • Must act honestly and for a proper purpose in the best interests of the company as a whole • Exercise such skill and care as expected from someone of the same level of skill, knowledge and experience • Only profit from position of director in accordance with Articles and/or member approval • Avoid any conflict between duty as director and any other duties/interests (unless authorised by Articles) • Act in accordance with the law, regulatory codes of practice, GFSC Code of Corporate Governance (draft) and other applicable Codes

What aren’t a director’s duties? • No duty to: • Get every single commercial decision right • Perform miracles • Do exactly what the regulator says

When acting in the best interests of the company, what is the Company? Shareholders Shareholders Regulators Directors Company Employees Commercial Counterparties Subsidiary

When acting in the best interests of the company, what is the Company?

When acting in the best interests of a group company, what constitutes the Company’s best interests?

Conflicts, groups and the best interests of the Company – other approaches…. “A director of a company that is a wholly-owned subsidiary may, when exercising powers or performing duties as a director, if expressly permitted to do so by the memorandum or articles of the company, act in a manner which he believes is in the best interests of that company’s holding company even though it may not be in the best interests of the company.” s.120(2) BVI Business Companies Act 2004 Similar provisions exist for joint venture and multi-shareholder companies.

Ensuring you’re doing your duty… • What can/should directors do to protect themselves from claims regarding their duties? • Stay informed, directors must understand: • The financial position of the Company; • The commercial position of the Company; • The regulatory and legislative landscape.

Ensuring you’re doing your duty … • What can/should directors be doing to protect themselves from claims regarding their duties? • Documents the decision-making process fully including: • Evidence considered • Alternatives considered • The basis on which it was decided the Company’s best interests were met • The basis on which it was decided any legislative/regulatory requirements were met

Conclusion • Consider who may be a director • Consider fiduciary duties, applicable laws and codes of conduct • Act in the best interests of the company • Boards should inform themselves during the process • Document the decision-making process

SPEAKER 2 Carol Goodwin FICB, TEP, C. Dir. Non-Executive Director

CORPORATE GOVERNANCE – do we really need Codes to influence directors’ behaviour? AGENDA • How high do we need to jump? • Can we attack the fungus of boiler-plate? • Rules and regulations or helpful guidance? • How green is the grass on the other side of the fence? • Good for the goose and the gander?

How high do we need to jump? “Corporate governance is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.The responsibilities of the board include setting the company’s strategic aims, supervising the management of the business and reporting to shareholders on their stewardship.The board’s actions are subject to laws, regulations and the shareholders in general meetings.” The Cadbury Code – 1992 [paragraph 2.5 is still the classic definition of corporate governance]

Can we attack the fungus of boiler-plate? • So ……. is it out with the old and in the with the new? • The new UK Corporate Governance Code – main changes • Better functioning of boards • Leadership • Effectiveness • Accountability • Enhanced risk management

Can we attack the fungus of boiler-plate? • Greater focus on performance related remuneration • More engagement with shareholders encouraged • FTSE 350 companies • Annual re-election of directors • Board evaluations to be externally evaluated every 3 years • Quality of corporate governance is ultimately dependent on board behaviour – not process

Rules and Regs or helpful guidance? The GFSC Code of Corporate Governance • What are we trying to achieve? • Where are we now? • 8 principles, backed by guidance The Board Directors The functioning of boards Business conduct & ethics Accountability Risk management Disclosure & reporting Remuneration Shareholder relations

Rules and Regs or helpful guidance? BREAKING NEWS !!! • Changes since the January draft • 14 pages (and only 6 of Code) vs 23 • More proportionate, less prescriptive • Guidance not hard Code • No formal “comply or explain” • No additional onerous reporting to the GFSC • UK Code, AIC Code & Insurers’ Code acceptable alternatives • Timeline?

How green is the grass on the other side of the fence? Central Bank and FSA of Ireland – consultation April 2010 • Covers banks and insurers (so far) • 34 pages of “requirements” – minimum standard that institutions shall meet • Seeking to impose minimum number of directors on boards • Seeking to limit number of directorships that directors can hold • Board meetings as least once a month • Compliance statement annually

How green is the grass on the other side of the fence? Basel Committee on Banking Supervision – consultation March 2010 • Covers banks now – other financial services entities later • 14 principles, 144 clauses • Covers directors and senior managers • Looks for board members to be “qualified” • Strong focus on risk – CRO • Addresses group structures – parent/subsidiary responsibilities • Includes the role of supervisors in governance

Good for the goose and the gander? Board Diversity • Controversial section in the new UK Corporate Governance Code to encourage board diversity • Particularly to encourage companies towards appointing a greater number of female directors!! GFSC Code of Corporate Governance • Developed for the local finance industry • BUT • Is good guidance for all companies • AND • Government / public sector AND REGULATORS!

Corporate Governance and Banks SPEAKER 3 Jeremy Quick Deputy Director of Banking

Code to be implemented October 2011 Evidence of some weaknesses in ICAAP and AML/CFT Reasons for this are materiality and external pressure Good governance makes commercial sense – fewer operational and regulatory issues Possible changes to enhance corporate governance

QUESTIONS?

And finally…..Your feedback is important to us, so please take a few moments to complete your feedback form.We look forward to seeing you at our Spring Seminar Series in 2011.Thank you.

Guernsey expects that every director will do their duties