 I'm delighted to welcome you this evening to the 2014 Alan and Overy lecture. This lecture is the third one in a series of annual lectures that are generously sponsored by Alan and Overy. We had the first lecture in 2012 and it marked the launch of the Cambridge Private Law Centre, where one of several centres in the faculty but probably still one of the younger ones. It's a tribute to Alan and Overy that they were prepared to back this rather embryonic endeavour. Now the centre's developed, it's in its third year, so I suppose it's a toddler and perhaps as active as a toddler, but not yet, I think, but Graham and I would both say, Graham Berger and I would both say, not yet in its prime. But one of the centre's ambitions is to facilitate enjoyable and productive jousting over quite controversial legal issues, and so I won't go back through all the lectures that we've had, but that first lecture that launched the centre was a debate between Millet Junior and Millet Senior. We had Lord Millet and his son Richard Millet QC debate, fiduciaries and bribe taking. And at the end of that debate we took a straw poll and I would say it was pretty evenly split. And perhaps ironically, Lord Newberger gave the judgement in the Supreme Court this year backing Lord Millet, Millet Senior, where he had to overrule his own judgement as, or justice, Newberger in the Court of Appeal, where he had backed Millet Junior. I thought that was rather nice as picking up both sides of the debate that had happened here. So I hope tonight we'll be just as lively an event continuing that tradition, and we've got Mr Gareth Price, who's a partner at Alunan Overy, to introduce tonight's speaker. So without more ado, I'll hand over to Gareth, if he's here, to introduce the speaker. Thank you very much. Thank you, Sarah. I'm delighted to join you to introduce Graham to you. I've known him for almost 20 years. He was my training principal at Alunan Overy. And since then, I've had the privilege to work in his team. I've also written books with him. And I now have taken on the role leading the projects group that he founded at ANO. He's a superb lawyer and I'm sure what he's going to say to you this evening will be very interesting. He graduated from Oxford with a first-class degree in law. He'd spent a year in Germany at a university reading German law as part of his undergraduate degree. He joined ANO in 1918 and became a partner in 1988. But in 1996, he founded the projects group at Alunan Overy. Under his leadership, he very quickly became the preeminent group of lawyers in the world advising on energy and infrastructure development. Everything from investment treaties through to contracts through to finance. It really is, I would say, the PhD of legal practice pulling together everything that you've learned from the beginning of your degree all the way through to private practice. Graham also told me that partnership at ANO is an initial career. It's not for life. Now I've reached a ripe old age of 43. I can see how absolutely correct he was again. So it was really no surprise to me that he took me outside for a cup of tea in 2007 to tell me that he was leaving to join a BG group. It was a moment of some surprise for a number of people but actually as I say on reflection it only reflected what he'd been telling us for a number of years. By a strange quirk of fate tonight is the 7th anniversary of Graham joining BG. Since then, he's worked for four CFOs, two CEOs, two chairman. The HR director is also here. It's quite a turnover compared to the rather staid experience of a law firm partner but perhaps we could come to that later. Graham is also the sitting chair of the GC100. So that's an elected post by his peers and contemporaries and that's the association of general counsel and company secretaries. His approach to law has also always been pragmatic and far sighted. He recognizes that English law is a mere reflection of the code that we wish individuals, businesses and indeed societies a whole to live by and to operate within. English law must be fluid and flexible as these priorities change over time but whilst it cannot be a hostage to its past it must also be careful not to make any jerk impetuous responses to what may be very, very short lived phenomena. I'm sure that's something that Graham will pick up as he talks to you about the trouble with executives. This approach was reflected in his time at Allen and Overie. He always instilled into the teams at A&O and I hope I'm carrying on in the same vein an academic curiosity in the law, the developments and the context within which they're made. This is critical to a practicing lawyer. You need to be able to understand the context for your client so that you can explain the real meaning of the law, not just the words on the page but also anticipate future developments. For all of you looking to move into law as a vocation, this is a critical part of what you will go on to do. Some people will tell you that being a practicing lawyer is knowing where to find the law, being an academic lawyer is knowing where the law is. I actually don't think that's correct. The best practicing lawyers understand the reasons behind the law so that they can advise their clients most appropriately on what it really means today and where change is likely to be in the future. I'm sure, therefore, that you will find Graham's lecture interesting and thought-provoking. There will be an opportunity for some Q&A at the end, so please, if you could hold your questions towards the end of the lecture, that would be appreciated. With that, please join me in welcoming Graham to the lecture. Thank you, Gareth, until that moment I was going to say to everyone who's arrived a bit late that you're not Graham Jinser, I am. So, look, as befits a legal lecture, I need to start with the disclaimer. So, the views I'm going to express in this lecture are solely mine, and they're not those of either BG Group, whereas you've heard I'm currently General Counsel, and they're certainly not the views of GC 100, where I'm chair. Much is written in the press about the work-life balance of executives, how, for example, many people are turned off corporate life because of the difficulties and sacrifices in particular that need to be made. Many executives, myself included, have asked themselves what comes first, my job or my family, my family or me, my belief in ethical business or my desire to land the deal at any cost and get a bonus. I particularly asked myself the last one. An economist on the New York Times recently received a letter posing the following question. Although I'm happy in my current job, having recently received a promotion, I'm the new fan of Cordor, that's not enough for my wife who's eager for me to get ahead. I'm not saying I lack ambition, but I'm reluctant to do what it takes to climb higher. Long hours, the bloody murders, and yet don't have a special obligation to consider my wife's desires. We are, after all, family. Yours, Rory Macbeth, Scotland. Now, it's not absolutely essential for you to hold that image of an executive in your mind during this talk, but it may help. Now, clearly what I'm going to do in this letter is I'm going to try to answer the implied question, what is the trouble with executives? But first I want to make sure that we're speaking the same language, and I'm going to do this quite quickly, but this is for those of you at the very beginning of your legal careers, just in case you're not doing a company law module. So when I refer to a director, I mean either a non-executive or an executive director of a company. So non-executive directors are not meant to be involved in the business of their company in an executive or managerial way. An executive director, by contrast, is a director who is involved in the business of the company in an executive or managerial way. And in the UK you'd normally find that the chief executive and the chief financial officer would invariably be your executive directors. There may be some others, it may depend on your sector, but there is a trend at the moment for the number of executive directors to be kept quite small. Now, the balance of interaction between executive and non-executive directors is a matter of some debate. So the guidance offered by the Financial Reporting Council's Corporate Governance Code states that, and I quote, the board should include an appropriate combination of executive and non-executive directors such that no individual or small group of individuals can dominate the board's decision making. And I'm going to come back to this particular provision later. So that's directors, non-executive and executive. When I talk about an executive, I mean any executive director, but also, and this is important, any senior employee of a company who's not a director but who reports to an executive director and who hates one of the business's divisions or functions. The executive directors and these senior employees, the other executives, will invariably meet in the larger companies as some form of formal or informal executive board or committee. And I'm going to say more about that later as well. Now, on this definition, I am another executive myself. I head my company's legal function as general counsel and I report to my chief executive. Right, so nearly there, at the top of our larger UK companies, the landscape is dominated by three classes of people, the non-executive directors, the executive directors and the other executives. The executive directors, of course, clearly have a foot in both camps. They're executives and they're directors. And this is a rather peculiar feature of the single or unitary board structure that we have in the UK, also, of course, in the States. Directors are to some extent both the governors and the governed. In terms of remuneration, there is an extremely large disparity between what executive and non-executive directors can earn. And I'm sure you've seen lots of this in the papers. But just to illustrate the point, I took a couple of figures from Vodafone's 2014 annual report. In the remuneration report that is inside that annual report, you'll see that the total remuneration for the 2014 financial year for Vodafone's chief executive or CEO is given as just under 9 million sterling. Ignoring the chairman, who is also a non-executive, the highest paid non-executive director in that financial year for Vodafone was their senior independent director who has paid a fee of £160,000. When I've done the maths for you, this means that the CEO was paid 56 and a quarter times what the senior independent director was paid. There's a very real risk reward issue for non-executive directors. As directors, they are prima facie subject to the same legal duties and liabilities as the executive directors. The corporate governance code that I mentioned earlier does however draw a distinction between non-executive and executive directors. And it provides helpful guidance of what is actually expected in non-executive directors as part of their role as members of a unitary board. It states, non-executive directors should constructively challenge and help develop proposals on strategy. And it further states, non-executive directors should scrutinise the performance of management, i.e. the executives, in meeting agreed goals and objectives and monitor the reporting of performance. So, as far as the code is concerned, the non-executive director's role is a supporting and supervisory one and it should be. Their hands are not on the levers of the company. And now I'm going to bring management consultants into the picture. Various definitions of management consultants. People hired at enormous expense and bought in far too late in order to assign blame. People who are in their own private lives don't have problems, just issues and improvement opportunities. And people who will never say that a company has too few people doing too much work. Some of you may know an excellent book on the history of the company written from an economic standpoint by two journalists from the Economist called John Mickletwate and Adrian Waldridge. And one of the themes they develop in their book is that one of the main reasons for America's industrial dominance after the First World War was better organisation on the part of its corporations. A new culture of management is what they call it. They identify as the pioneer of this new culture, a man called Alfred Sloane who became the president of an ailing General Motors in 1923. Sloane and General Motors' then largest shareholder, Pierre Dupont, decided that GM's activities were far too disparate to be won centrally and they created autonomous business divisions. Mickletwate and Waldridge described the resulting organisation in the following terms. Each division was defined by the market it served which was determined by a price pyramid. You had Cadillac for the rich, Oldsmobile for the comfortable but discreet, Buick for the striving, Pontiac for the poor, the poor but proud, and Chevrolet for the plebs. So if you take nothing away from this lecture but this, just be careful when you're offered a car next time you're doing a fly drive holiday in the States. Say no to the Chevrolet, say have a good day and move to the rental desk next door, get yourself a Cadillac. But Mickletwate and Waldridge also say, by providing a car for every purpose, this pyramid allowed General Motors to retain customers for their whole lives. It also ameliorated the economic cycle. In boom times GM could boost profits with high-end products and in bus it could rely on Chevys. Now Sloan marshaled his business divisions under an overarching and powerful general office full of numbersmen which ensured for example that GM capitalised on the immense purchasing power it could achieve by pooling the demands of each of its divisions. Quoting from the book again, they say, divisional managers looked after market share, the general executives monitored their performance. At the top end, a 10-man executive committee headed by Dupont and Sloan set a centralised corporate strategy. Interestingly Henry Ford did not embrace Sloan's managerial reforms and was actually openly critical of them. By 1929 Ford, which was then still run by the great man himself, saw its market share fall to 31% while GM share had gone in a couple of years from 17% to 32.3%. Despite this and the preeminent economic position of the great US companies during the 1950s and 1960s, Mickletwate and Waldridge believed that UK companies didn't generally realise the importance of organisation and most importantly have devolved organisation down into executives until the 1970s by which time they reckon that more than half of Britain's top 100 biggest industrial companies have turned to McKinsey, the management consultancy for advice on exactly this topic. If General Motors in the 1920s and the 1930s was a complex organisation today's modern listed company is a hyper complex organisation. No one man can possibly understand everything relevant to each and every business decision a large modern company needs to take. The complexity of modern tax statutes alone proves the point and so do the myriad of detailed compliance rules in the financial sector. The reality of corporate life is that as you go further and further up the corporate hierarchy the decisions you take are ever higher levels of abstraction. Briefing papers and proposals are worked on by subject matter experts passed up the line and then up the line again for endorsement and refinement until the individual or body endowed with the requisite authority is reached. Now what that individual or decision making body is looking for in the paper is a recommendation. And now finally after this rather long winded introduction it's time to bring the subject of this talk the executive and more precisely the executive is just an executive and not an executive director out of the shadows. And just to make sure that we've got a shorthand way of referring to this type of executive I'm going to call him an ordinary executive which is better than my previous attempt at the defined term which was simple executive. To assist a CEO in taking decisions most large public companies in the UK will like the General Motors of the 1920s have some form of executive committee. Whether or not this is the case and what form any executive committee might take should be disclosed in the company's annual report and there's a research topic for some of the students here there. Now I readily confess not having to not having gone through the annual report of each and every FTSE 100 company. But I do have at my disposal the results of a poll of FTSE 100 companies on the topic that was undertaken in April this year. 48 companies responded and 44 said that they did indeed have an executive committee. The legal status of these executive committees varied. 20% of the respondents to the poll said that their executive committees did have formal legal status in that these committees were committees of the board even though only executive directors and non executive directors sat on them. For long of course with their colleagues who were just ordinary executives. Where an executive committee wasn't a formal board committee it was usually an ad hoc committee set up by the CEO just to advise him almost like a kitchen cabinet. Now in this type of case the correct analysis must be the executive committee merely advises the CEO in the exercise of powers delegated to him by the board. But where the executive committee is actually a formal board committee and subject of course to what it says in its constitution the CEO can presumably be outvoted by the other members of the committee even though a majority of those members might not be directors. Now this poll also revealed that 70% of the executive committees had formal rules of governance or terms of reference but in two thirds of the cases where those rules or terms of reference existed they were not made public. So here we have a rather curious possibility some of our companies might have a formal committee in which ordinary executives could in the first instance at least outvote executive directors. So what I'd like to do is just drill down a little bit more into what these ordinary executives actually do. Where one of these ordinary executives is in charge of a division or division of a company if that company is one of the companies at the top end of the footsie these divisions might actually be larger and in some cases many times larger than entire companies the lower end of the footsie. A market closed on the 10th of October this year which happened to be when I was writing this talk each of the top 25 companies in the footsie 100 had a market capitalisation above $20 billion a by contrast each of the bottom 33 companies had a market capitalisation of below $5 billion sterling. So a divisional manager or an ordinary executive in charge of division of a footsie 25 company could therefore easily be running an enormous and complex business in his or her own right. So let me take you back to what I said about hunting for recommendations in board and committee papers. Any recommendation made by an ordinary executive in relation to his or her division or function in a paper presented to the executive committee or board will carry enormous weight. A chief executive might be able to challenge such a recommendation but he or she will not be privy to all of the detailed work that's gone into bringing the proposal to the executive committee or board in the first place. So today's larger companies, ordinary executives are likely to be the people at the top of the organisation who really know the detail of what's going on. Nothing illustrates this for me more starkly than the process that's often undertaken to reassure the directors of a company in relation to their personal legal liability. There are, as I'm sure you know, various instances when directors are asked to put their reputations on their personal assets on the line and certify or take responsibility for the accuracy of statements made on the company's behalf. So here's an example, it happens to be Section 414D of the Companies Act 2006 in relation to a director's liability for the strategic report included in the company's annual report and accounts. And that section says, if a strategic report is approved that does not comply the requirements of this act, every director of the company who knew that it did not comply and was reckless as to whether or not it complied and failed to take reasonable steps to secure compliance with those requirements and you know what's coming, commits an offence. Now quite rightly the directors look for comfort from their executives in relation to their liability in these circumstances and they will usually require back-to-back certificates from the responsible executives. After all, it's the executives who understand the detail and the executives of the company and senior employees reporting to those executives who actually run the business. The executives of course also control the flow of information up the company and into the boardroom and of course it's a bit controversial but it's hard to deny that non-executives mainly see what the executives want them to see. We have for two decades and more since the publication of the cabaret report in 1992 talked to improve the quality of contribution made by the directors of our public companies and to instill in those directors high standards of conduct. The Corporate Governance Code published by the Financial Reporting Council is rightly regarded as one of the best codes of good corporate governance in the world. It is still voluntary code and this type of flexible city of London approach was never going to satisfy the press, the public and the politicians in relation to the increasing levels of executive pay. Shareholders peered toothless in the face of pay awards granted by boards to their executive directors which appeared at best to be excessive and at worst egregious. Until recently, the most that the grief shareholders could do was vote against a company's remuneration report in what was merely an advisory vote in the general meeting. Now in 2013 the Enterprise and Regulator Reform Act gave shareholders more teeth. They can now vote on a three year long remuneration policy and a company can only make payments to a directors in accordance with that policy. Any director, director who authorises a payment in breach of an approved policy is liable to personally identify the company. What also far and so good, this is again part of the journey of trying to get better governance in the boardroom around your directors and the boards. But what about the ordinary executives? In one recent case, investors expressed grave concern over the size of a remuneration package offered to a newly appointed executive director who had been an ordinary executive only to find out that the new appointee when an ordinary executive was already being paid more than an executive director he replaced. A couple of years ago one of my friends is an Australian lawyer that my company used. I spotted, thumbing through BG Group's annual reports in our reception and I knew what he was looking for because he confessed afterwards. He was trying to find out what my salary was but actually couldn't because I'm an ordinary executive not a director. Well following the financial crisis of course this was changed for bankers and the remuneration code which is now jointly published by the Financial Conduct Authority and the banking regulators came into force in 2011 to meet requirements of the capital requirements directive and it broadly applies to senior management, risk takers and staff in what are called control functions. Now this code, the remuneration code in the banking sector doesn't seek to regulate individual levels of pay but seeks to ensure that pay packages don't encourage inappropriate risk taking and levels that bank can afford. But a cursory read of the regulator's comments relating to this code and these comments introduce the code reveals that in their opinion the pay incentives for executives and really here they mean ordinary executives were a major contributing factor to the PPI misselling and libel scandals. But this is only to talk about pay and rations but it does prompt us to ask the central question of this talk what does the law or the appropriate regulator in this case the Financial Conduct Authority and its role as a UK listing authority had to say about the role and conduct of ordinary executives in companies generally. So I invite you to do this. Take your copy of Butterworth's company law handbook shake it upside down shake all of its 1300 and more sections on the Companies Act 2006 and see what falls out in relation to ordinary executives. Not much. The most that seems to fall out will be references in the penal sections dealing with sanctions which may be applied to any officer of a company who is in default and an officer for these purposes is defined as any director, manager or secretary. Manager a very very curious old fashioned word nowadays most of our corporate life has been Americanised instead of managers we've got executive vice presidents, senior vice presidents senior executive vice presidents and in fact every possible type of vice president each with a title more baffling than the next. In addition by the way the title director has become completely adulterated particularly in the banking sector and many people are held out as directors and even managing directors who are nothing of the sort. So this of course takes you to the definition of director in the Companies Act which is any person occupying the position of a director by whatever name called. But it would be odd to say that ordinary executives of a public company are directors when a full blown board exists. So ordinary executives really not directors and in any event this isn't the problem I'm trying to explore what I'm trying to see what restrictions are imposed now by the law or regulation on people who patently are not directors. So we keep on looking and you come to the shadow director provisions of the company's legislation do these apply to ordinary executives and again just to make sure everyone is speaking the same language a shadow director is defined as a person in accordance with whose directions or instructions the director of the company are accustomed to act. Now it's obviously going to be a matter of fact whether or not a particular ordinary executive falls within this definition in any particular case and clearly an ordinary executive could fall within this definition but you have to realise that the shadow director concept is of quite limited application. Shadow directors are not directors for all purposes and the main external impact to the concept is to be found in the wrongful trading provisions in the Insolvency Act. Section 175 of the Companies Act does state that the general duties of directors that are specified in sections 171 to 177 of the Act apply to shadow directors but only where and to the extent that the common law rules or equitable principles so apply. Whatever that means. So the shadow director provisions might impose some restrictions on ordinary executives but again this doesn't really address the particular problem I'm exploring. Again what restrictions are there in the shadow body of corporate law and regulation on senior executives who are not acting as directors? Now I assure you I'm not going to make the next quotation simply because Professor Worthington invited me to give this lecture and is one of the authors but Gower on company law acknowledges that there is a paradox here and the authors say I quote the general statutory duties of directors set out in the Companies Act clearly do not apply to managers who are not directors of the company agreed. However it is important to note that when applying the law relating to directors duties the courts do not distinguish between the actions of the director as director and actions as manager where the director is an executive director of the company. Those duties will apply to both aspects of the directors duties. So it seems that the general statutory duties are a great rule for anyone managing a company but only if you're a director of that company. If the authors acknowledge the faults behind the argument that statutory duties should be extended to ordinary executives but acknowledge that the rule that this particular view hasn't found favour in the courts so they conclude the exclusion of senior managers as such from the statutory duties of directors probably depends upon the continuation of the UK practice as recommended in the UK corporate governance code that the board should contain a substantial number of executive directors. If British practice they continue were to move in the US direction of reducing the number of executive directors sometimes to one the chief executive confining the statutory duties to members of the board might become a policy which needed to be reconsidered. If you recall I mentioned the following guidance at the very very beginning of this talk from the corporate governance code. I said part of the code said the board should include an appropriate combination of executive and non executive directors and in particular independent non executive directors such that no individual or small group of individuals can dominate the board's decision making. But if you look at the 2006 version of the code there was a supporting principle which read to ensure that power and information are not concentrated in one or two individuals there should be a strong presence a strong presence on the board of both executive and non executive directors. This reference to there being a strong presence on the board of both executive and non executive directors has now gone. On a straw poll that I conducted recently just by looking at the websites and the latest annual reports of the 10 largest companies in the FTSE each company had on average 2 to 3 executive directors and usually 10 to 12 non executive directors. As I mentioned earlier the CEO and the CFO were directors always and when there was a third executive director this was usually a chief risk officer in the case of the banks or chief operating or technical officer in other cases. 3 of the top 10 companies in the FTSE only had 2 executive directors so we've gone from the executive directors having a strong presence on the board to having them swamped. In the UK we might not have moved to the US model but we've certainly moved towards it and if you talk to recruitment consultants they'll confirm as much. Now all this careful numerical analysis reminds me of the criticism that's usually leveled against lawyers they were not good with numbers but this has never been the case in my own family and I've tried to instill a love of mathematics in my children from a very early age and on one occasion I was driving home from a dinner to celebrate my 41st birthday and I had my 6 year old son in the car. I'm keen not to waste this quality time and ever keener to develop my credentials as a tiger father I thought I'd quiz him on his maths so I asked him, William how old will I be when you are as old as I am now? So I was 41 and he was 6 how old will I be when you are as old as I am now? and he fell quite and I could almost hear his brain working this question over and after a few seconds he piped up and he said ok dad I know I've got the answer you'll be dead Anyway let me come back to my hunt for provisions in the general law regulating the conduct of ordinary executives as employees of a company of course ordinary executives owe certain duties to their employer under employment law and under their employment contract while some of the duties under employment law are coincident with the director's statutory duties in particular the duty of fidelity the general practice is to expand on an ordinary executives duties in his employment contract or through the company's employment policies but I've never seen an ordinary executives employment contract which replicates the general duty to promote the success of the company contained in section 172 of the company's act with all of its nuances and actually this is important because I think section 172 marked a turning point in company law in recasting the old common law duty for a director to ask him the best interests of his shareholders so the company's place in larger society was recognised so of course as you know in exercising his duty to promote the success of the company now a director has to have regard to among other things the impact of the company's operations on the community and on the environment but I doubt that any executive has this written into his employment contracts so I've mentioned on a number of times the corporate governance code and help me the latest version of the code cites a paragraph on the first 1992 version and that paragraph says corporate governance this is according to the financial reporting council it says corporate governance is about what the board of the company does and how it sets the values of the company it is to be distinguished from the day to day operational management of the company by full time executives oh dear so the corporate governance code does not seek to directly regulate ordinary executives and I keep looking my next stop is the UK's listing rules but these only make mention of ordinary executives in connection with dealings in a company's securities largely for transparency purposes and for visibility of insider dealing and the relevant provisions of the listing rules apply to persons discharging management responsibilities now these persons these persons discharging management responsibilities are defined as each director and each senior executive who has access regularly to inside information and has power to make managerial decisions affecting the future development the business prospects of the company an ordinary executive of course may well fall within this definition of ordinary executive but rules governing when an ordinary executive can deal in his company's shares and requiring the disclosure of dealings is hardly a comprehensive rule book it is however instructive that the legislators thought the senior executive should be subject to the same rules as directors in the area of share dealings even though this year is the 800th anniversary of Magna Carta I think we should swallow our pride and look at what another jurisdiction does and as you heard from Gareth in his introduction of me I spent some time studying German law now I do appreciate that Germany mandates a two tier board structure for its public companies but how German law deals with executives is instructive now as I'm sure many of you know a German company has a supervisory board of our six grants The members of the supervisory board are appointed by the shareholders but the members of the management board are appointed by the supervisory board At law, the management is tasked with the management of the company and the supervisory board has the supervisey activities of the management board a member of the supervisory board cannot simultaneously be an active member ynghylch y Gweithreifedd cyfnodd, a'r Gweithreifedd cyfnodd. A bydd yn gyntaf y rôl, y Gweithreifedd cyfnodd gweithreifydd yn ymweld y cyfnodd, y cyfnodd y Gweithreifydd, ac mae'n cyfnodd y Gweithreifydd cyfnodd. Yn ddefnyddio'r ddweud, challenges cyfnodd, a'r Gweithreifydd cyfnodd, mae'n gweithreifydd y same. Under German law, they must essentially exercise the care of a prudent and conscientious businessman. It's very easy to make this statement, actually, because the section of the German stock corporation which imposes this general duty on members of the supervisory board does so by cross-reference to the duties imposed in another section on members of the management board. Germany also has its own corporate governance code, it's not unique to us, theirs is called the Deutsche Corporate Governance Codex, very unique name. And this code contains extensive provisions regulating, on a comply or explain basis, both the supervisory board and the management board. And in particular it states that good corporate governance requires an open discussion between the management board and the supervisory board, as well as between the members within the management board and the supervisory board. So, I'm coming back now to the original question, what is the trouble with executives? Or more particularly, what is the trouble with the people I refer to as ordinary executives? In my view, ordinary executives under English law are floating beneath the surface. We're flying below the radar and we're hiding in the undergrowth. In large public companies ordinary executives are extremely instrumental in forming opinions. They're influential and powerful in their own right. General counsel excluded, by the way. The rule-free zone in which ordinary executives operate is almost certainly going to come to an end in the financial sector. The regulators of just two days ago, I think, closed their consultation on the new senior managers regime introduced by the financial services banking format 2013. That act not only introduced a new offence relating to a senior manager taking a decision which causes a financial institution to fail. It also introduced a series of new misconduct offences applicable to senior managers which are actionable by the regulator. A senior manager for these purposes is defined as a person performing a senior management function within a financial institution. A senior management function involves managing aspects of a financial institution's affairs which involve, and I quote, a risk of serious consequences for that financial institution. One of these new misconduct offences for bankers and for senior managers in the banking industry has already obtained a degree of notoriety because it reverses the burden of proof and initially imposes liability on a senior manager simply because a conduct rule is broken on his watch. To avoid a fine or other disciplinary consequence, the senior manager for this particular offence has to himself prove to the regulator's satisfaction that he taken such steps as a person in his position could reasonably be expected to take to avoid the controversial breach occurring or continuing. And so I ask myself, how did it come to this that you can run the risk of committing an offence simply by virtue of the position that you hold? So I think we should grasp the nettle and establish clear duties under general company law for ordinary executives operating in our larger companies. We wouldn't have to adopt a two-tier board structure in order to do this, but companies in the FTSE 100, at least, for the simple reason that most of them already have this structure in all but name. The only real difference is the degree of formalisation of their executive committees. In my view, we've become a slave to the concept of the unitary board and we've failed to move our legal structures on it. The world is much more complex now than it was when limited liability was first offered to companies. The theory of capitalists, shareholders entrusting their money to entrepreneurs, directors to use in a business and earn a return is just too simplistic. And frankly, I think the battle here was probably lost as soon as we had to start making a distinction between executive and non-executive directors. I think there would be many benefits to formalising executive committees and the role and responsibilities of executives. And here are seven just to get us started. First, clarity of roles as between the non-executive directors and the executives. That would help. Non-executive directors, we held to account for failures to supervise and not be pilloried when, quote, management got it wrong. Non-executive directors are not management. This should reset and readdress the risk-reward ratio for those aspiring to non-executive positions and place accountability for management where it should be. Secondly, this accountability for management would be a collective accountability shared by all of the executives. To the extent that there's a problem with dominance and domineering CEOs, this collective responsibility should act as another check and balance. And this isn't some pious hope incidentally. The point is that ordinary executives could incur personal liability if they abdicated their responsibility and simply allowed a dominant CEO to force through a particular decision. Other executives would not simply be able to point to the CEO and shrug their shoulders if something went seriously wrong. Now, thirdly, ordinary executives would become more visible and acquire a new status in Germany. It's quite something to be a member of a public company's management board. Giving ordinary executives of our larger companies greater visibility and a higher public profile might drive better behaviours. Fourth, we could very easily make ordinary executives subject to the same statutory duties as directors. Fifth, we could be even more radical and place the primary legal responsibility for the accuracy of accounts and public statements on executives. They are, after all, the people much more likely to know whether the relevant legal requirements are being complied with. Sixth, greater visibility of ordinary executives would allow greater visibility in relation to their remuneration. Seventh, we've got directors' qualification records where we've got nothing similar in relation to ordinary executives. For me, the alternative is not very edifying. We could, of course, continue to muddle through, pay lip service to the unitary board structure for our largest companies, applying a fix here and a fix there. Equally, we could end up with a type of criminal and disciplinary sanctions that have been applied to the financial sector being applied on an ad hoc basis to other sectors. I mean, why stop at banking? What about energy, transport, the pharmaceutical sector? All of these have got equal capacity to harm the common good and in each of these sectors, the public have a right to demand clear accountability and good governance, the same as in banking. But so that we don't end on too serious a note, I think I'm going to conclude with an old American joke about executives. There's a senior executive and a junior executive talking to each other, the Walter Cullow. And the senior executive has been telling the junior executive how times have changed and in his day, the executives allowed him to really take part in the decision-making process. And the junior executive is probing him on this and he says, really? You mean they really, really allowed you to take, play some part in the decision-making process? And the senior executive says, yep, sure did. Sometimes they even let me toss the coin. So thank you very much indeed for listening. Thank you for persevering. That's all I had to say, Sarah, but happy to take questions if anyone would like to ask it. I'm sure there will be questions. So that was actually quite provocative. You know when you're sitting in the audience and someone mentions your name and you don't know what's going to come next. Sorry about that. Anyway, I'm still breathing. Can I take questions?