Company law reform raises UK corporate governance questions

Author: | Published: 1 Dec 2005

Shareholders rarely take action against directors in the UK because doing so is difficult, expensive and requires investors to show clearly illegal or fraudulent conduct by the board. That might be about to change.

Under the Company Law Reform Bill, an overhaul of legislation intended to promote shareholder participation and clarify directors' responsibilities, shareholders will have a mechanism to bring derivative actions against directors for neglecting their duties.

The UK government appears surprised at the controversy that has been generated by the prospect of increased shareholder action. Less than a week after the bill was published, Alun Michael, minister for industry and the regions, issued a statement saying that the bill did not represent a major change in the law and was not a move towards US-style class action by investors.

Not everyone agrees. "The company law reform creates a framework within which there will be litigation of...