Select Committee on Treasury Appendices to the Minutes of Evidence


Memorandum submitted by the Bar Council of England and Wales

  As a member of the Law Reform of the Bar Council, I have been invited to respond to your letter of 25 March 2002 to Niall Morison, Chief Executive of the Bar Council of England and Wales.

  The matters which are under investigation by the Treasury Committee cover a very wide area of complex and detailed law and practice. Whilst we are very grateful to have been considered to be an appropriate body to make submissions, I regret that, in the time available, it is impracticable to provide any written submissions to the Treasury Committee for its deliberations in mid-April, let alone provide such in a form which would have allowed them to have been considered by an appropriate committee of the Bar Council. I do however set out below some personal views which may be relevant to those considerations.

  The difficulties are compounded by the fact that some of the areas are already under review by the Department of Trade and Industry review of Company Law and others have been considered by various committees in the relatively recent past.

  Whilst there can be little doubt that lessons will be learned from the ENRON collapse, and whilst it is possible to point to a lack of an equivalent of Financial Reporting Standard 5 (Reporting the Substance of Transactions) under US Generally Accepted Accounting Standards as being a reason why ENRON and, it now appears, other similar problems have developed in the USA in the way in which they have, I am concerned that there should be no rush to judgment before the facts of the ENRON collapse are fully explored and more widely available.

  In my view it is important to bear in mind that there has been no "ENRON-style" collapse in the UK. In saying that I would not wish it to be thought that I was being complacent and it is obviously sensible to keep the area under review, I am concerned, however, that there is a danger that damage could be done by a hasty rush to judgment on the issues upon which your Committee expects to focus.

  The question of the position of non-executive directors is one which has been considered both at a legal and practical level in recent times. As far as the legal position is concerned the view of the recent Company Law Review, that duties owed by directors, including non-executive directors, should be set out in a statutory form may be important if a view were to be taken that non-executive directors should play a greater role as "devil's advocates" at Board level.

  However, from a legal point of view, if there were to be a distinction between the role and duties of non-executives from those of executives, the law would become more complicated in an area where attempts are being made to make the law simpler and easier to understand.

  Other aspects of the debate about the role of non-executive directors seem to me to be more political than legal and I feel that it would not be appropriate for me comment in this letter.

  As regards the position of auditors and the tensions which exist between their responsibilities to shareholders and their involvement with management, it is almost inevitable that such tensions will exist given the nature of the position. Whilst accounting rules help enormously in dictating the degree of transparency when looking at company accounts, it is important not to lose sight of the fact that there will be a number of items in accounts which may require a fine judgments to be made and it is important to ensure that those preparing the accounts are aware of those to whom they owes duties enforceable at law. The Courts have over a number of years developed applicable principles and careful consideration must be given to the impact of any changes to those principles.

  One factor to be considered, particularly after 11 September 2001, is the likely impact of any changes in applicable principles on the cost of obtaining insurance cover for those who are then likely to find themselves in the firing line.

  I do intend, following your recent conversation with Mr Morison, to let you have further and more considered points on the full terms of reference in due course.

John Cone

8 April 2002


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