Abstract
The board of directors has ultimate responsibility for strategies implemented by corporations. This chapter provides a link between the board’s risk management activities and corporate legal strategies. In this context, there are two relevant regulatory elements: the corporate governance rules that require companies to establish a risk management policy and the associated disclosure, and the specific legal requirements that the particular company risks breaching due to the nature of its operations. The theoretical part of the chapter examines the concept of strategy and explores the connections and tensions between corporate risk management policy, the expectations generated by risk management disclosures, the company’s true exposure to legal risks, and the implications for enterprise.
The chapter then shifts focus to look at a number of examples that reveal the problems associated with treating the law as fixed. Examples include: the introduction of new statutory law where the company’s ability to generate and preserve useful evidence may become an issue (e.g. Corporate Manslaughter and Corporate Homicide Act 2007, UK); established statutory duties where a degree of uncertainty remains due to difficulties in statutory interpretation (e.g. aspects of United Kingdom health and safety law); and established law that becomes subject to change in a common law system (e.g. the duty of care to those injured on company premises). These examples are linked back to the opening discussion of corporate governance principles with the aim of highlighting difficulties and inconsistencies faced by a board in coping with both its governance role and its role in corporate legal strategy.
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Notes
- 1.
V. Dulewicz, and P. Herbert “The Priorities and Performance of Boards in UK Public Companies” (1999) 7(2) Corporate Governance: An International Review 188.
- 2.
R. Whittington, What is Strategy and Does It Matter?2nd ed. (Thomson Learning, 2001) 10 [Whittington].
- 3.
Whittington frames these four approaches in terms of four combinations of ways in which the two questions of his book title can be answered, i.e. What is strategy? And does it matter? ibid.
- 4.
Ibid 2–3, emphasis added.
- 5.
Ibid 11.
- 6.
Ibid.
- 7.
R. R. Nelson, and S. G. Winter, An Evolutionary Theory of Economic Change (Harvard University Press, 1982).
- 8.
Whittington (n 2) 2–3.
- 9.
K. Foss, and N. Foss “The Knowledge-Based Approach and Organizational Economics”, N. Foss, and V. Mahnke eds., Competence, Governance, and Entrepreneurship (Oxford University Press, 2000) 65.
- 10.
A. Belcher, and T. Naruisch “The Evolution of Business Knowledge in the Context of Unitary and Two-tier Board Structures” (July, 2005) Journal of Business Law 443–472.
- 11.
Whittington (n 2) 2–3.
- 12.
M. G. Bougon, and J. M. Komocar, “Directing Strategic Change: A Dynamic Wholistic Approach”, A. S. Huff ed., Mapping Strategic Thought (John Wiley & Sons, 1990) 158.
- 13.
In Brown v. Board of Education, (1954) 347 U.S. 483 (USSC) the US Supreme Court held that “separate but equal” has no place in public education and separate educational facilities for blacks and whites are inherently unequal.
- 14.
M. V. Tushnet, The NAACP’s Legal Strategy against Segregated Education, 1925–1950 (University of North Carolina Press, 1987) 144.
- 15.
Ibid.
- 16.
K. E. Fletcher, and A. S. Huff, “Strategic Argument Mapping: A Study of Strategy Reformulation at AT&T”, A. S. Huff ed., Mapping Strategic Thought (John Wiley & Sons, 1990) 169 [Fletcher and Huff].
- 17.
Business Week, (11 October 1982) cited in Fletcher and Huff, ibid.
- 18.
See provision D.2.1 of the Combined Code on Corporate Governance, (1998) [The Code]. The Code was first published in June 1998 and fully effective on or after 22 December 2000. The new Combined Code was published 2003, online: FSA http://www.fsa.gov.uk/pubs/ukla/lr_comcode2003.pdf.
- 19.
M. Power, The Audit Society: Rituals of Verification (Oxford University Press, 1997) 55.
- 20.
At that time referred to as the Cadbury Code of Best Practice .
- 21.
UK, Rutteman Working Group, Internal Control and Financial Reporting – Guidance for directors of listed companies registered in the UK (ICAEW, 1994) [the Rutteman Guidance].
- 22.
R. W. Mills, “Internal Control Practices within Large UK Companies”, K. Keasey, and M. Wright eds., Corporate Governance: Responsibilities, Risks and Remuneration (John Wiley & Sons, 1997).
- 23.
The Turnbull working party, Internal Control: Guidance for Directors on the Combined Code (ICAEW, 1999) [The Turnbull Guidance] and revised version (FRC, June 2005), online: FRC http://www.frc.org.uk/documents/pagemanager/frc/Revised%20Turnbull%20Guidance%20October%202005.pdf.
- 24.
Ibid para. 28.
- 25.
A review of the continued appropriateness of the Turnbull Guidance published by the Financial Reporting Council in June 2005 confirmed that “The guidance should continue to cover all internal controls”, and not be limited to internal controls over financial reporting. Overall, the Review concluded that significant changes are not required. See, Financial Reporting Council, Turnbull Review Group, “Review of the Turnbull Guidance on Internal Control” (16 June 2005), online: FRC http://www.frc.org.uk/documents/pagemanager/frc/Turnbull%20review%20evidence%20paper.pdf [FRC Review of the Turnbull Guidance].
- 26.
The Turnbull Guidance (n 23) para. 13.
- 27.
Ibid Appendix, emphasis added.
- 28.
Ibid para. 16, emphasis added.
- 29.
A. Carey, and N. Turnbull, “The Boardroom Imperative on Internal Control”, J. Pickford ed., Mastering Risk (Pearson Education Ltd., 1999) 6.
- 30.
The Turnbull Guidance (n 23) para. 9.
- 31.
Ibid para. 17.
- 32.
Ibid Appendix.
- 33.
M. E. Jones, and G. Sutherland Implementing Turnbull: A Boardroom Briefing (ICAEW, 1999) 21, online: ICAEW http://www.icaew.com/index.cfm/route/120932/icaew_ga/pdf.
- 34.
See (n 19) and associated text.
- 35.
The FRC Review of the Turnbull Guidance (n 25) encourages boards to include in the internal control disclosure such information as is considered necessary to assist shareholders’ understanding of the main features of the company’s risk management processes and system of internal control.
- 36.
A. Belcher, “‘Something distinctly not of this character’: how Knightian uncertainty is relevant to corporate governance” (2008) 28(1) Legal Studies 46–67.
- 37.
R v. F. Howe & Son [1999] 2 All ER 249, [1999] IRLR 434 (C.A.) 437, emphasis added.
- 38.
See for example the Corporate Manslaughter and Corporate Homicide Act 2007 (C.19).
- 39.
See for example, UK law on protective clothing.
- 40.
See for example, UK law on occupiers’ duty to protect against risks.
- 41.
Corporate Manslaughter and Corporate Homicide Bill, Explanatory Notes, (21 July 2006) para. 14, emphasis added, online: House of Commons – Explanatory Note http://www.parliament.the-stationery-office.co.uk/pa/cm200506/cmbills/220/en/06220x--.htm.
- 42.
Ibid para. 15, emphasis added.
- 43.
Australian Criminal Code Act 1995 (Cth), part 2.4, section 12.3(6).
- 44.
Explanatory Memorandum to the Criminal Code Bill 1994 (Cth) para. 7.126.
- 45.
Australia, Workplace Death and Serious Injury: a Snapshot of Legislative Developments in Australia and Overseas, Research Brief No. 7 (2004–2005), online: Parliament of Australia, Parliamentary Library http://www.aph.gov.au/library/Pubs/rb/2004–05/05rb07.htm. The story of Victoria’s attempts to legislate in this area has been told in Karen Wheelwright, “Corporate Liability For Workplace Deaths And Injuries – Reflecting On Victoria’s Laws In The Light Of The Esso Longford Explosion” (2002) 7(2) Deakin Law Review 348.
- 46.
SI 1999/3242. These regulations replace the Management of Health and Safety at Work Regulations 1992 SI1 1992/2051 that contained the earliest explicit requirement for a risk assessment to be carried out.
- 47.
Health and Safety at Work, etc., Act 1974 (UK), 1974, s. 33(c).
- 48.
UK, Health and Safety Executive, Five steps to risk assessment (2d ed.), (leaflet) (2006) INDG163REV2, online: HSE – Publications http://www.hse.gov.uk/pubns/indg163.pdf.
- 49.
Control of Substances Hazardous to Health Regulations 2002 , SI 2002/2677.
- 50.
Avian Influenza (Preventive Measures) (No 2) Regulations 2005 , SI 2005/3394I.
- 51.
Management of Health and Safety at Work Regulations 1999, SI 1999/3242.
- 52.
[2004] 4 All ER 221.
- 53.
SI 1992/2966, regs. 4, 7.
- 54.
[2004] 4 All ER 230–231.
- 55.
Ibid 236.
- 56.
For examples of safety climate and culture see R. Flin, K. Mearns, P. O’Connor, and R. Bryden, “Measuring Safety Climate: Identifying the Common Features” (2000) 34 Safety Science 177–192; See also S. J. Cox, and A. J. T. Cheyne, “Assessing Safety Culture in Offshore Environments” (2000) 34 Safety Science 111–129. For organizational culture and climate see W. H. Glick, “Conceptualizing and Measuring Organizational and Psychological Climate: Pitfalls in Multilevel Research” (1985) 10(3) Academy of Management Review 601–616.
- 57.
N. Pidgeon, and M. O’Leary, “Man-Made Disasters: Why Technology and Organizations (Sometimes) Fail” (2000) 34 Safety Science 15–22, referring to N. F. Pidgeon, “Safety Culture: Key Theoretical Issues” (1998) 12(3) Work and Stress 202–216.
- 58.
Ibid.
- 59.
[2005] EWHC 1342.
- 60.
Ibid para. 33.
- 61.
[2006] 1 WLR 958.
- 62.
Occupiers’ Liability Act 1984 (UK), s. 1(3)(c).
- 63.
[2004] 1 A.C. 46, [2003] 3 All ER 1122 [Tomlinson].
- 64.
[2006] 1 WLR 953 [Keown].
- 65.
Tomlinson (n 64) 87.
- 66.
Ibid 65.
- 67.
Keown (n 65) 959.
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Belcher, A. (2009). Corporate Risk Management and Legal Strategy. In: Masson, A., Shariff, M. (eds) Legal Strategies. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-02135-0_11
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