M'learned friends set up a protection scheme
Thursday 02 May 1996
For years law firms grew fat on fee income earned from helping aggrieved clients pursue negligence claims against their auditors. Until, that is, the accountants decided to squirrel away the yacht, the Roller and the second home from the reaches of m'learned friends by incorporating.
It was inevitable that sooner or later the legal profession would go the same way. The floodgates may not yet have opened in the way they have with auditors. But the pounds 610m claim Clifford Chance is facing from a group of Canadian banks over the collapse of Olympia and York is a harbinger of things to come.
With a litigation culture developing to rival that of the US - even landscape gardeners now feel obliged to take out professional indemnity cover - it is understandable that professionals will want to avoid the principles of joint and several liability. After all, they hark back to a time long ago when it was reasonable to assume that all partners knew each other intimately.
Now, even a regional-based firm such as Dibb Lupton has well over 100 partners. Many City firms will have similar numbers spread around the globe. It is therefore not inconceivable that an individual could lose not just his or her shirt but also the house and everything they own because of the acts of somebody they have never met.
Very few claims actually come to court, but the cost - in terms of money and management time - of dealing with the countless number brought because of the perception that their insurance cover gives them "deep pockets" can be huge enough to distract an organisation from its main purpose.
Dibb Lupton is seeking to convince us that its motivation is not to protect its partners' assets but to improve its long-term investment arrangements and give staff a share of the profits.
Pull the other one, as they say down at the Bailey. Let there be no mistake: the motivation is the desire for protection and the place the lawyers may seek it is Jersey, where the good burghers are dreaming up a new law that will allow professions to be partnerships with limited liability at the same time. It would be more than a little unsettling to see some of our most famous legal names dashing offshore in order to avoid their pursuers. But it might be amusing to all those they have persecuted in the past.
Circus and lip service rule the agm
British public companies have always tended to regard annual general meetings as an unnecessary irritant, like a nasty dose of flu that comes round once a year. These days it is not just the inconvenience of having to answer to shareholders, informed and otherwise, that causes the irritation. Agms have long been a focus for pressure groups and single-issue politics - most of us remember Barclays and South Africa - but in recent years a growing number of worthy causes have come forward to use them as a platform for protest - Navajo Indians, Cedric the pig, Action Against Smoking, Uncle Tom Cobbleigh and all. One share buys you your passport to the meeting.
Occasionally, as happened yesterday at the British Aerospace agm, or earlier this year at Hanson, their antics reduce proceedings to the level of farce. When this happens it becomes an embarrassment and distraction not just to directors but to other shareholders too. Most of those who attend do so because they have invested in the company and want to know how it is doing. Those there for other reasons, however legitimate, get in the way of the proper purpose of the meeting, which tends to become unstructured, disorderly and sometimes a complete waste of time.
But it is hard to see how these groups could be excluded, even assuming that it is right to do so. Legislation against the obstreperous minority always ultimately ends up harming the legitimate majority. When BAe attempted to curb the rights of shareholders - a move designed at least in part as a way of dealing with protest of yesterday's variety - it was rightly sent away with a flea in its ear.
In Japan, the solution to the extortion gangs that used to plague annual general meetings was to declare that they all happen on the same day. Nobody would seriously suggest that as a possibility here but something plainly has to be done if this little enclave of the free market system is to survive.
Making the annual general meeting a more serious and prolonged event, much as they are in Germany, might be one way forward. In Britain they tend to be little more than an after-thought, lip service to the Companies Act and the idea of shareholder democracy. It is no surprise in these circumstances that they are being turned into a circus. A more vigorous, time-consuming and patient approach to these events is the way to go.
The long knives appear at ICI
It was a sign of Charles Miller Smith's special status as an outsider that he did not join the ICI pension fund when he became chief executive, but opted instead for a large annual payment into his own pension plan.
As a company that has traditionally looked after its always very long- serving executives with a comfortable retirement, that certainly set him apart from the previous generations of ICI men. Now the former finance director of Unilever has served notice that long service will no longer be a part of the ICI culture at all.
In an extraordinary interview yesterday he announced that he expected to replace 30 to 40 of his 150 top executives with outsiders over the next 18 months. ICI confirmed the figures, but its explanation that the replacements would fall naturally into slots vacated by retiring executives was unconvincing, to say the least.
Unless the age profile of ICI's top 150 is out of line with other large companies, it is unlikely that 40 of its most senior people will be up for normal retirement by the autumn of 1997.
This has the characteristics of a purge that might do more to unsettle management than incentivise it, at least it in the short term. What a cheering and motivating idea for the present incumbents, that nearly a third of long-serving executives are not up to the new standards set by an outsider with the help of McKinsey's.
ICI insisted that Mr Miller Smith had briefed senior executives on his intentions, but it is not at all clear that they knew the brutal arithmetic until they read their newspapers.
It is hard to believe that the way it emerged will boost confidence in Mr Miller Smith's plans to shake up a company that has only just completed the most radical reorganisation in its post-war history.
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