Finance must keep in touch with wider world

THE local finance industry has been learning more about the latest developments in corporate governance. London-based expert Richard Smerdon, speaking at a Guernsey International Legal Association lecture, said that it was important for the sector to know what was going on across the world because businesses in the island would be investing in these regions or offering advice about such moves.

'Guernsey is an international community and certainly the legal profession is very internationalised, so I thought it would be interesting to talk about the emergent countries of central and eastern Europe and Asia,' said Mr Smerdon.

'A lot of money is being invested in those regions and research seems to show that for those companies that believe and practise good corporate governance and are in regions with a good regulatory framework, investors will pay a premium to invest in them.

'This island is an investing community. It certainly has a lot of financial institutions which are making investment decisions, not always necessarily here but in their head offices in those regions, and a lot of advice is given by people from within this community to those investing so it is important that these people know what is going on.'

Mr Smerdon recently retired as senior company lawyer at Osborne Clarke, having been senior partner for five years. He spent the last three years of his career running its technology law office of Osborne Clarke in Silicon Valley in northern California.

He is now editor of the monthly Wolters Kluwer Group publication Practical Governance and the author of A Practical Guide to Corporate Governance.

GILA president Maxime Le Tocq said that it was important for the association, members of which can include qualified lawyers from any recognised jurisdiction, currently including South Africa, the Cayman Islands and Trinidad and Tobago, to meet to talk about issues that affect them and their clients.

She added that when a speaker of Mr Smerdon's quality came over, the GILA would open up the talk to the entire finance industry.

Mr Smerdon said the classic definition of corporate governance was 'the system by which companies are directed and controlled'.

'That comes from the Cadbury Report of 1992 but I accept that there are quite a lot of variations on that, depending on where you are coming from,' said Mr Smerdon.

'If your interest is the needs of society then you will take that point of view as opposed to that of the shareholders or the company.

'You will be interested in the need for the boards of directors to respond to the needs of society rather than the shareholders.

'But most people would go with the classic definition.'

He said that the Guernsey Financial Services Commission's guidance on corporate governance in the finance sector, issued last year, provided a very good definition.

'I think that what it is saying is that good governance is practised by those companies run with an eye on the management of risk,' he said.

Mr Smerdon also spoke about the lessons that could be learned from the ongoing case in which the current board of the Equitable Life Assurance Society is suing the former board for £2.4bn following the collapse of the company.

'Really, it revolves around the duties of non-executive directors.

'Guernsey has lots of people who are non-executive directors or advise them so it will be useful to go through what we have learned from the case to date, even though we are yet to have a judgement,' he said.

He also spoke about corporate governance developments in the EU and USA.

'Guernsey is not in either but you have a situation where you are constantly rubbing up against the EU,' said Mr Smerdon.

'The EU is trying to get a set of regulations in relation to governance and reporting that matches the USA's standards.

'So you have to be aware of this process of mutual recognition for each others' system because Guernsey rubs up against the EU all the time.

'You have got to be aware of the bigger picture.'

He said that UK business leaders were saying it was hard to back mutual recognition when it ended up in so much regulation.

But Mr Smerdon added that the USA was still the biggest investing country in the world. If the EU did not want to get left behind, then it had to pay attention to the issues.

n Equitable Life has now abandoned its High Court damages claim against accountants Ernst & Young.

Its case against the auditors was that it had failed to inform the then board of directors about the financial mess the mutual was in.

It had originally sued the accountants for £2bn but dropped part of its claim - worth £1.3bn - in July.

However, Equitable confirmed that it would continue with its case against 15 of its former directors.