The Consequences in Terms of Corporate Governance - Report Example

Law Directors, Shareholders and Rewards Business Report From, April 20, Palin &Co Solicitors and Constituted Attorneys, United Kingdom Corporate Governance To, The Board of Directors Medicaments plc United Kingdom. The consequences, in terms of corporate governance, of obtaining a listing on the London Stock Exchange Corporate governance has an immense focus in the current scenario. The operation procedures of the London stock exchange are much active in the arena of the corporate governance. The London stock exchange is an excellent host for the listing companies in the stock exchange. The corporate governance law deals with the London stock exchange in an efficient manner to guarantee rapport among the clients. The LSE is among the leading stock exchanges in the world and is a vigour part of the UK finance market. The LSE provides to make certain that organized markets are intact with the rules, policies and the supervision of buy and sell and market movements. The elementary aim of the LSE is to make available various mediators and investors with eye-catching and synchronized markets to raise capital and accomplish investment necessities. The corporate governance specifies certain rules to be imbibed in the listing of LSE. “London marketplace for securities. It was formed in 1773 by a group of stockbrokers who had been doing business informally in local coffeehouses. In 1973 the London Stock Exchange merged with several regional British stock exchanges. In 1991 the exchange replaced its governing council with a board of directors, and it became a public limited company” (London stock exchange, 2010). They include; listing rules, prospectus rules and the transparency rules. These rules are relating to the transparency instruction and communicate in terms of the financial reporting. There are enormous consequences for Medicaments plc Company after listing themselves in the stock exchange. It provides a fair and a prospective market for the evaluation of the company thereby providing an easier and an economic method in accessing the capital in upcoming period. More certainty in the level of liquidity in the share market, and the announcement of the results in the quarter, interim and the prelim helps the investors and the company in knowing the returns received and much concrete information in the latest reporting. A good opportunity in the reaping of the equity finance of the company is the core competency in the market among the competitors in the market and the strength of the company. It also makes the company informed about the assets, liabilities and the financial position of the company and the profits and the losses acquired by the company at each interim; availing the rights. Specific areas of non-compliance with the Combined Code; briefly commenting on why compliance is important in each case: The code of the conduct is the most important and sustaining principles and requirements. The accessible listing regulations require programmed companies to make a discovery statement in relation to the Code. In the first part of the statement, the company has to account on how are they relevant to various principles in the Code. This ‘comply or explain’ approach contributes the operation for many years and is extensively received by board of company and investors. It is expected that the companies listed in the exchange will comply with rules and the regulations of the combined code; the company has to take up steps in considering various provisions in the code of conduct. “The combined code supersedes and replaces the Combined Code issued by the Hampel Committee on Corporate Governance in June 1998. It derives from a review of the role and effectiveness of non-executive directors by Derek Higgs1 and a review of audit committees2 by a group led by Sir Robert Smith” (Code on corporate governance, 2003, p. 5). In this particular context; the company, Medicaments is owned by the Croft family. The head of the family Mike Croft was the CEO, and has the dual role of board chairman of the company, and CEO. The roles of chairman and CEO are not be taken up by the same person according to the combined code of LSE. The company had six executive directors and two non-executive directors as the employees appointed under the recommendation of Croft .The salary package of each of the employees where set by the CEO, depending on the personal assessment conducted. The board of the management did not consist of the formal targets and the reviews on various policies. The board had not formed any committee in the operations. The company did not posses any of the full fledged internal control system and the audit control is left to the external audit department. The compliance is very essential for the Combined Code and the Code apply to the listed UK companies and its most important aim is to develop board efficiency and to improve financier’s self-reliance by elevating the principles of corporate governance. It describes the responsibility of the board, the chairman and directors; records procedures which are applicable to the board members, and strategy concerning the chairman, chief and executives of the company. The Code has the policy of comply or explain policy which distinguishes that various companies will have good motive for not complying with assured requirements and gives them the opportunity to explicate. The compliance gives the identity in each of the company with the same procedures and the patterns with which the listing has to take place in the LSE.”Combined code contains the corporate governance principles and code provisions applicable to the listed companies incorporated in the United Kingdom” (Principles of good governance and code of best practice: Preamble, 2002, p. 1). Suitable recommendations for achieving compliance of the Medicaments Plc: The board should congregate adequately and frequently to successfully release its duties. A prescribed timetable must be maintained for matters; particularly reserved for the decision. The annual report should include the different decisions taken by the management. The responsibility of chairman and chief executive is not supposed to be taken by the same person. The distribution of responsibilities among the chairman and chief executive should be obviously created. The board is ought to discuss with the key shareholders on progress and should define the cause to shareholders at the time of annual report analyzing. The company has to establish a committee and the personal departments in looking after the selection and the recruitment procedure and the salary fixation. The company has to have a full fledged internal audit. The guarantee of authority and information are not determined in one or two persons. There should be a well-built existence on the board of both executive and non-executive directors. There should not be any close family tie up among the company’s advisers, directors or employees. Besides this, corporate governance also needs to consider the UK equivalent of the US Sarbanes Oxley laws governing the activities of corporate enterprises in this country. This has been designed to prevent power and authority being centralized on one person, or cartels; which could set their own laws at the expense of the interests of shareholders, employees or stakeholders. Sarbanes Oxley has been specifically designed to circumvent economic and financial frauds of the kind that led to the downfall of companies like energy giant Enron, internet provider World.com and a host of large and small companies in the US. Question 2: (Contract Law): Business Report: This is a typical case of Contract of Sale of goods by description under the UK “Sale and Supply of Goods Act, 1994” (Sale and supply of goods act 1994, 1994). This Act has been the amendment of the earlier Sale of Goods Act 1979. Under the provisions of Section 14 Sub section 2 of Sale of Goods Act, there is an implied clause that the goods being pre-offered for sale are of satisfactory quality, in the sense that the quality of the goods would be of the kind that acquiesces satisfactory condition of fitness when reviewed by a reasonable man of ordinary prudence and judgment, taking into consideration the specific description credited to the goods by the buyer, its pricing and any other relevant situational aspects. “Where the seller sells goods in the course of a business, there is an implied term that the goods supplied under the contract are of satisfactory quality” (Formation of the contract: Implied terms about quality or fitness, 1979). Another aspect is that if the buyer has specified any special characteristics for the product, it is necessary that the seller conforms to such specifications or special consideration of sale, and this could also underline the contract between buyer and seller. Again, according to the Sale of Goods Act, 1979, the fact that the buyer does not intimate anything to the seller; does not automatically mean that the goods have been accepted. Nevertheless, “The buyer is also deemed to have accepted the goods when after the lapse of a reasonable time he retains the goods without intimating to the seller that he has rejected them.” (Sales and acts 1994: Acceptance of goods and opportunity to examine them, 1994). He also needs to be given reasonable time to inspect and examine the goods with reference to the Purchase Order and standing instructions provided by the seller. Under Section 15B (newly entered) –Where in a contract of sale the seller is in breach of any term of the contract (express or implied), the buyer could stake a claim for damages and in the event the violation is a material one, he could treat the contract as cancelled, reject any part of the contract and treat part or full contract as cancelled. When goods are to be sold by description, it shall correspond with description, and in event that it is not, it shall be deemed to be a major breach, which is cancelled at the option of the aggrieved party. In this case, it is seen that there is a clear breach of the implied clause to Sale and Supply of Goods, in that the goods ordered for were of Grade 1, but supply was for Grade 2, a lower quality that the buyer may not accept. Thus, the buyer, at his discretion has the following options: 1. He may repudiate the entire contract and claim damages for losses incurred, £60,000 towards restoration and £15,000 towards interest charges. These charges would not have been payable had the goods been of same Grade I as demanded. 2. He may accept part of the performance which has been in line with the contract and refuse the rest, with or without penalties and compensation for difference in Quality 3. He could seek specific performance. The buyer Sulphur Limited would need to replace Grade 2 with Grade 1 and bear all expenses for rendering the same. The English Laws place a lot of emphasis and reliance on the contractual obligations between parties and their rightful performance in furtherance of the terms and conditions of the contract. If there are material deviations on the part of either party, this needs to be communicated to the other party for his due approval. In this case, it was necessary for Sulphur Limited to have informed Medicaments. The failure of Sulphur Limited to do so is tantamount to fraud on their part, passing off inferior grade salt as of superior grade. However, Medicaments need to prove that all the costs and detriments suffered by this company was a direct result of the wrong grade being provided by Sulphur Limited and a kind of cheating perpetrated by the members of this company. However, the court would only allow the kind of recompense and repairs that could be reasonably attributed to the fault of the supplier, Sulphur Ltd. At its best, the courts would try to put back the aggrieved party, Medicaments, in a position, has the issue not taken place in terms of economic costs. Whether the disposal of earlier production could be linked to this issue; it remains for the courts to decide. On their part Sulphur Limited could claim invocation of liability limiting clause which clearly states that they could only be held responsibly for the losses arising due to their direct negligence. Thus, the aggrieved party has only three options: 1. Irrespective of the situation surrounding the case, for which the buyers are not responsible, Medicaments needs to prove Sulphur’s negligence in court. 2. The company could rescind part, or whole of the contract and claim damages and restitution for damages suffered. 3. The company could direct specific performance –replace grade 2 with grade 1 at their cost and risk. Question 3 (Employment Law): Susan and Joe have been in employment with Medicament plc for seven and five years respectively. Both Susan and Joe enjoy seniority terms with respect to age as well as number of years of service experience. According to the UK employment laws, the Employment Rights Act of 1996 defines constructive dismissal as an act of termination of the working contract by an employee due to the unfair conduct of the employer which the employee equates to constructively dismissing from employment. .”In such cases, the employee retains the right to seek legal compensation as having been dismissed unfairly.” (Constructive dismissal, 2010). Susan has filed a claim for constructive dismissal but the law of constructive dismissal requires the claims to be made due to any of the three reasons. The first reason is the employer changing the terms of employment contract as in the cases of deliberate cuts in payment or status. The second ground of a constructive dismissal claim requires the breaching of contract by the employer in the form of bullying or ignoring complaints. The third ground is the breaching of such rules which results to inequitable industrial practice. According to the constructive dismissal act, an individual is a prospective claimant of constructive dismissal if the individual gives notice to the employer due to the reason of insufferable stressful and unpleasant work situation or due to the inequitable treatment met to the individual by the superiors or a co-worker. When an employee resigns under such circumstances it is not considered by the law as a free will resignation but it is considered that the employer forcibly coerced the employee into resigning from the job. “An employee can resign and claim Constructive Dismissal due to the employers behavior, but the employer could turn around and say that he (The employer) breached the employment contract, but that it was done, for example, because of the reorganization of the business. The chances are that the employer will be given the benefit of the doubt.” (Employment law: Constructive dismissal, 2010). Here, Susan files a case for constructive dismissal because there is disagreement and clash of opinion because Helen who is junior to Susan in terms of both age as well as work experience in the organization has been promoted to the position of finance manger while Susan who has been in the firm for seven years and also has a service experience of around twenty five years has been sidelined and now has to work under Helen. The conclusion that is reached by Susan is that she has been devoid of promotion because of the age factor and she also argues that working under Helen is a type of harassment meted out to her by the company. Susan’s case is strong on the viewpoint that Susan has all the eligibilities for a promotion in terms of training as well. Susan has been in the company for a long period of time and considering this he is legally eligible for promotions. Also, Helen’s eligibility for promotion over Susan has not been made clear. Thus, Susan’s case of constructive dismissal on the basis of harassment and age discrimination is legally strong. Joe’s case is that, the company has made an indirect sex discrimination because of which he has been denied the promotion. According to the UK Equal Pay act of 1970 the law states that it is unlawful if discrimination in an organization occurs on the basis of remuneration or benefits that are provided to a men and a women employee. The act of Equal Pay of 1970 comes under the Act of Equal Opportunities. “The effect of a successful claim is that an “equality clause” is inserted into the claimant’s contract, following which, the employee is entitled to equality of pay and other terms and conditions with someone of the opposite sex, in a comparable job.” (Summary of the law on equal pay, 2009). In this case both Joe and Susan are working in the finance department of the Norwich office. Joe is a trainee accountant in the firm and Helen has been promoted to the finance manger. There are several designations in the finance department between the position of a trainee accountant and that of finance manager. The capacity of financial works in the entire finance department is not same. It is because of the increased work pressure that the firm decides to appoint a new employee in the finance department. This implies that the work capacities of both Joe and Helen are different. Therefore, to make Joe’s case stronger he has to prove that his and Helen’s work are equally rated by the employer. While filing a case of Equal Pay Act, Joe will be considering Helen as the comparator but the company can argue it on terms of the responsibilities and duties that both Joe and Helen are doing which made Helen eligible for promotions. Joe’s claim is strong that Joe feels he is discriminated against Helen, Who is of opposite sex and that they are both working in the finance department of the company. But, the company can settle the matter in terms of both Joe and Helen working in equal capacity as needed by the Equal Pay Act, 1970 of the UK law. Therefore, Joe’s case according to the Equal Pay Act of 1970 is legally a weak case. Legally Susan’ case is a stronger than that of Joe’s case.. Reference Lists Code on corporate governance, 2003. [Online] The Combined Code on Corporate Governance, p. 5. Available at: http://docs.google.com/viewer?a=v&q=cache:bkM86Rd3JQIJ:www.fsa.gov.uk/pubs/ukla/lr_comcode2003.pdf+combined+code&hl=en&gl=in&pid=bl&srcid=ADGEESh5orWpkii_V5n2Q5rT9Zlity7apU4SriN77pVyofYxzxXJ5TF1S0HXXGC1ar_In_3DljoRp95S9FTnEhtvmg7R1r6DhaUqKEe0fImnrVjjaTT-iyJw1WliJZqr0WgAjboUKXkk&sig=AHIEtbR5uIq0qN2gGtQQpuzdTk0BT8Rxbg [Accessed 29 April 2010]. Constructive dismissal, 2010. [Online] Business Dictionary. Available at: http://www.businessdictionary.com/definition/constructive-dismissal.html [Accessed 23 April 2010]. Employment law: Constructive dismissal, 2010. [Online] Compact Law. Available at: http://www.compactlaw.co.uk/free-legal-information/employment-law/constructive-dismissal.html [Accessed 29 April 2010]. Formation of the contract: Implied terms about quality or fitness, 1979. [Online] OPSI. Available at: http://www.opsi.gov.uk/RevisedStatutes/Acts/ukpga/1979/cukpga_19790054_en_2#pt2-pb5-l1g14 [Accessed 29 April 2010]. London stock exchange, 2010. [Online] Answers.com. Available at: http://www.answers.com/topic/london-stock-exchange [Accessed 29 April 2010]. Principles of good governance and code of best practice: Preamble, 2002. [Online] The Combined Code, p. 1. Available at: http://www.fsa.gov.uk/pubs/ukla/lr_comcode3.pdf [Accessed 29 April 2010]. Sales and acts 1994: Acceptance of goods and opportunity to examine them, 1994. [Online] OPSI. Available at: http://www.opsi.gov.uk/acts/acts1994/ukpga_19940035_en_1#pb1-l1g1 [Accessed 29 April 2010]. Sale and supply of goods act 1994, 1994. [Online] OPSI. Available at: http://www.opsi.gov.uk/acts/acts1994/ukpga_19940035_en_1 [Accessed 29 April 2010]. Summary of the law on equal pay, 2009. [Online] Thompsons. Available at: http://www.thompsons.law.co.uk/ltext/l1010001.htm [Accessed 29 April 2010]. Read More