Two-tier board structure would hinder decision-making process, warn solicitors

CORPORATE GOVERNANCE: measures to codify directors' duties would lead to 'inefficiency'

Solicitors have spoken out against proposals to bring the UK model of corporate governance in line with other European countries and to codify the duties of a director.

The recommendations - made in a report by financier Sir Derek Higgs into the role and effectiveness of non-executive directors - proposes a two-tier board structure distinguishing between the different legal duties for non-executive directors and executive directors and setting out a statutory list of a director's duties to a company.

Steve Durno, the policy adviser to the Law Society's company law committee, said: 'We don't think there should be dramatic changes to the current structure, which works very well, and we would oppose any move to adopt a two-tier board structure.

The introduction of such as structure, with executive directors on a management board and non-executive directors on a supervisory board, would cause operational inefficiency by adding an extra tier to the decision-making process.'

Mr Durno also said that any codification of directors' duties could attempt to 'simplify the role too much'.

He added: 'I think a best practice guidance would be far more effective, rather than trying to fit all duties on a side and a half of paper.'

Peter King, a corporate partner at City firm Linklaters, said: 'The model of a supervisory and management board comes from the German model, but the legal system is entirely different over there and I don't believe it would work any better.

The law in the UK is very clear at the moment and there aren't many differences in the legal duties of executive and non-executive directors - I think they should remain subject to the same responsibilities.'

In addition to that of the company law committee, other responses to the report have come from the London Stock Exchange, the Institute of Chartered Accountants and the Institute of Chartered Secretaries and Administrators; all support the protection of the unitary board structure and the non-statutory approach to corporate governance.

The deadline for responses to the consultation paper has now passed and Sir Derek will consider the opinions before sending a final draft of the review to the Department of Trade and Industry for incorporation into the Companies Bill 2003.

Andrew Towler