Another morning, another moment we see another round of iterated news. Just now I noticed another article placed 5 hours ago (5 hours after my previous blog) on how 2 more senior directors are moving out. The first one “company secretary Jonathan Lloyd, who advises the board on legal and governance issues, had resigned and was serving out his notice until March 2015“, the second one “Ken Hanna, chairman of Tesco’s audit committee, is also set to step aside as a non-executive director as the company’s chairman reshuffles his management team“. The news was in more than just one source. The quote “‘His resignation is not connected to the current investigation. It’s his own choice; he’s got a new job with another listed company,’ a Tesco spokesman said“. All this might be true, but let us be fair, if it was not HIS choice, would we hear this from either Jonathan Lloyd or Tesco?
This got me looking into another area. I got the impulse after seeing a PDF (at http://www.chadbourne.com/files/upload/dandoliability.pdf).
In there we see the following under the title ‘General Duties of Directors under the Act‘, “To promote the success of the company for the benefit of its members having consideration to: (a) the likely consequences of any decision in the long term” as well as what we see at 3.5 under Common Law Duties, where we see “At common law, a director is obliged to exercise a reasonable degree of skill and care in carrying out his/her duties. The standard of care involves both an objective and subjective element”. In other words, the director is required to exercise that degree of skill which might be expected from someone having both: ‘his own particular knowledge and experience‘ as well as ‘the general knowledge and experience which might be expected of a person carrying out the same functions as those carried out by that particular director‘.
For those who kept their eyes on my blog articles on Tesco, are you seeing the issues that are now in my mind?
I talked about negligence on several moments, I iterated parts of these and wondered about several questions, especially the fact that the press has been lacking in digging into these matters. Now a simple Google search led me to the PDF by Chadbourne & Parke. The Guardian could have had decent insight a mere 23 minutes by bus away (a little over 3 miles), so why does it take a non-journalist from the other side of the planet to connect the dots?
The PDF is a mere information piece, perhaps a little advertisement and it states that you needs proper legal advice, yet, not one paper has been digging into that pile have they? I did not get my law degree in the UK, yet I do get the gist of it, more important, the deeper I dig, the clearer the view seems to become that others are ignoring it. So, are these all just imaginations of conspiracy theory by me the blogger? This is clearly a question the reader might ask themselves. Yet, am I accusing of issues being covered up? I am to some degree, yet at the foundation I am questioning the information I read and I wonder why others, those who should be asking and digging on ‘issues’ are not doing that.
Yet the jewel was in 5.1, where we see “To a large extent, these mainly relate to duties of internal management, e.g. the keeping of accounting records; the preparation of annual accounts; the filing of documents with the Registrar of Companies and the keeping of the statutory books of the company. Failure to perform these duties or to ensure that they are performed may result in fines both for the company and the defaulting directors. Directors may also be subject to imprisonment“, so when we see this does it not seem interesting on how quickly some are leaving the field for a ‘better’ option?
This all brought me to Re D’Jan of London Ltd  1 BCLC 561. It is a UK Law case and quite the one at that became the main precedent which is now codified under s174 of the Companies Act 2006. “He did not show reasonable diligence when he signed the form. He was therefore in breach of his duty to the company“, how does this relate?
Is it about filling in a form? No, but when we regard s214(4) of the Insolvency Act 1986, we see the same approach as we see in a mere PDF by Chadbourne at 5.1, there is a visible need for “general knowledge, skill and experience“, but how do we see the term general knowledge? You see, the Tesco issues are stated in regards to ‘specific knowledge’, as we see the changes as they had been pushed through before the Dave Lewis change. This all gets me back to Rebecca Shelley at Tesco. First of all, there is no accusation here, there is no indication that she did anything wrong. So why does she pop up on my radar, because she is a woman? No! Tesco has several, some even in higher places then Rebecca. Let’s take a look that I saw on the Birchwood Knight site (at http://www.birchwoodknight.co.uk/news-article/tesco-hires-rebecca-shelley-for-group-director-of-corporate-affairs-role-151).
Here we see the following quote “As part of her corporate affairs role, Rebecca will be responsible for government and media relations, investor relations, internal communications and corporate social responsibility (the legal affairs and other elements of Lucy Neville-Rolfe’s brief are being split into another role)“, am I reading too much into this?
Consider the (former) flying parts of Tesco. When we see the need and the issues involving legal matters, was the revamping of the role as Rebecca Shelley received it a niche part of what should have been? This is where I see ‘general knowledge’ versus ‘specific knowledge’. It is my personal view that Rebecca’s role should be a lot more senior, especially in light of the revelations we see in the papers, am I that wrong? If she had the legal sides to her role, how much earlier might we have seen the overstatement, or the Gulfstream issue for that matter? These issues are in relevance towards the place I am trying to see, places the press does not seem to be looking, the place that readers as well as half a million Tesco employees should be aware of. I will go one step further, as I see the issues in play, as I see the matters of non-transparencies as well as an indicated lack of information towards the shareholders gives reasoning that they might want to evolve the role of Rebecca Shelley to the board. Especially in light of the massive changes Tesco is likely to face.
Yet, legally speaking, there are additional questions when we look at http://www.ibe.org.uk/userassets/briefings/ibe_briefing_31_tax_avoidance_as_an_ethical_issue_for_business.pdf, was the Gulfstream a form of tax avoidance? None of this is illegal, but it comes with ethical questions and as such I wonder how much the shareholders knew or should know. If tax avoidance is avoiding social obligation and as such it could damage public trust and reputation, does the link now make sense? The argument that shareholders want maximised value, which means a minimised taxable footprint, so how are choices made? More important why am I the only one who seems to be asking the questions that have relevance and am I alone digging into this?
One final step regarding the Chadbourne paper, at 6.15 we see “that directors of companies must make certain disclosure statements in the directors’ reports. This applies not only to information which the officer actually knew of but also information he would have known about if he had conducted a reasonable enquiry. However, the provision goes further and requires the director to confirm that, so far as the director is aware, there is no relevant audit information of which the company’s auditors are unaware. A director has a duty to exercise reasonable care, skill and diligence when preparing the directors’ report. In determining a director’s liability under the Act, the statutory test is that a director will commit an offence if he knew the statement was false or was reckless as to whether it was false and failed to take reasonable steps to prevent the report from being approved“, which just raises additional questions. Yet, consider the following in light of all I wrote and quoted about the issues on generic and specific tasks, the issues on “which the officer actually knew of but also information he would have known about if he had conducted a reasonable enquiry” becomes an issue when the board is so niched that reasonable inquiry is no longer an option. It would in my mind place the role of Rebecca Shelley at the centre of it all, yet with the legal part removed we would see a hindrance there too. So as you look at the events that the press wrote about, the parts I wrote about and the questions I have been asking. I mentioned in the early beginning of Tesco regarding orchestration in the article ‘The orchestration has engaged‘, yet I thought it was external, is it possible it had been internal and the involved parties are clearing the field really fast at this point?
But there is one more issue, especially if I want to remain true to the title ‘A matter of Jurisprudence’, s370 Enforcement of directors’ liabilities by shareholder action (as seen in the Companies Act 2006), we see under s370(1)(a) “in the case of a liability of a director of a company to that company, by proceedings brought under this section in the name of the company by an authorised group of its members;” there are a few other issues which give question on how enforceable this would be, yet consider the issues we have seen, what more should be looked at? Consider chapter 6 of the same act ‘Voidness of provisions protecting auditors from liability’, now consider “for exempting an auditor of a company (to any extent) from any liability that would otherwise attach to him in connection with any negligence, default, breach of duty or breach of trust in relation to the company occurring in the course of the audit of accounts”, now we get Pricewaterhouse Coopers in the mix. There is no indication at present that PwC is at fault in any way, yet when we see the issue regarding small change (read 250 million), when we regard that this inflation was not just straight through, but as I see it (a clear assumption) the fact that it required a whistle-blower, indicates that the inflation was decently buried. Was it buried well enough for PwC? That is the question. The implied extra 3 million in consultancy might have been valid, considering the size of Tesco, so where is the negligence? There might not be any at all, but consider that the Tesco executives took PwC for a ride and it was not found and it was signed off on, when THAT becomes visible, what will happen to the value of PwC, if a mere 250 million can topple a 70 billion pound company, what would be the impact on PwC for not finding it?
Perhaps that is a conspiracy theory, evolving as the facts seem to fit (or fitting the facts as they seemingly evolve), but are they? Even I question that what I find, but I will ask questions none the less, something the press has not been doing in any way, shape or form.