Business, Innovation and Skills CommitteeWritten evidence submitted by Philip Goldenberg

1. Introduction

1.1 I am a solicitor specialising in Company Law, Corporate Finance and Corporate Governance. I was the Legal Adviser to the Royal Society of Arts’ TOMORROW’S COMPANY Inquiry in the mid 1990s, and then advised the Government’s Company Law Review on the topic of Directors, Shareholders and Stakeholders—I was responsible for the concept of “enlightened shareholder value” referred to in para 3.1 of the Kay Interim Report.

1.2 My general thoughts on this concept were fully set out in a Lecture I delivered to The Institute for Advanced Legal Studies in 1998.

1.3 I wish to comment on a particular topic in the Kay Report discussed at para 3.24 of the BIS Response.

2. Substance

2.1 In that para 3.24, the BIS rightly point out that, as a consequence of the related explicit provisions of the 2006 Companies Act as regards directors’ duties, directors of an offeree company may lawfully recommend to shareholders that they reject a bid at a premium to the pre-bid share price if they believe that the transaction will destroy value in the longer term or that the offer price does not reflect the fundamental value of the company.

2.2 Sadly, however, this approach is not followed in practice. Take-overs of listed companies are regulated by the Takeover Panel—effectively a cartel of the investment banks with no statutory or regulatory framework (it must be the only regulatory body which is recognised in, but wholly unaccountable under, statute law). And, as with all self-regulation, it favours the “self”.

2.3 The Panel’s City Code imposes a specific duty on offeree company directors to advise shareholders whether or not an offer price is fair and reasonable. But it does NOT, other than in the weakest generalities, qualify this by a statement of the law as regards directors’ duties and set out by the BIS in para 3.24 of their Response.

2.4 As a consequence, City practice is to disregard these duties. The near-unanimous advice by investment bankers to directors of offeree companies is to focus solely and exclusively on price. This happened in the Kraft/Cadbury takeover, and I accordingly also attach for convenience the article on the Cadbury takeover which Mark Goyder (the Founder Director of the Centre for Tomorrow’s Company) and I wrote for the Wall Street Journal—please see in particular the penultimate para under “Not Price Alone”. Indeed, there was also an earlier case in which Greg Dyke wished to reject the BskyB bid for Manchester United (of which he was then a Director) because he thought it incestuous for a football club to be owned by a broadcaster, but was overwhelmed by the erroneous advice by Manchester United’s investment bankers (who may well have had their fee in mind).

3. Recommendation

The Committee is invited, in its Report, to recommend strongly that the Government require the Takeover Panel to make the legal position set out by the BIS in para 3.24 of its Response clear beyond peradventure by inserting an appropriate bold textbox in the City Code.

16 January 2013

Prepared 24th July 2013