Investors in the UK are protected from insider dealing by corporates better than other European investors – but regulation is lagging behind jurisdictions such as New Zealand and the US.
A three-year survey of global investor regulation carried out by the World Bank and law firm network Lex Mundi has revealed that New Zealand has the toughest protection for investors, with Afghanistan at the bottom of the heap with almost none.
The project examined the way countries deal with the increasingly important corporate governance issue of self-dealing, where executives use corporate assets for personal gain.
Economists from the World Bank, Harvard University and Dartmouth College in the US, together with lawyers from 90 Lex Mundi firms, compiled the research after measuring how countries would regulate a fictional case of self-dealing.
The survey looked at how much disclosure needs to be given as to directors’ interests in deals, the extent of a director’s liability and how easy it is for a shareholder to bring a lawsuit.
New Zealand scored highest in all three areas. A number of other countries, including the UK, China, France, Hong Kong, Malaysia, Singapore, Thailand and Zambia, have equally tough disclosure rules, making it mandatory for an executive to disclose interests.
One of the Lex Mundi lawyers taking part in the research commented that practising law in Singapore is like “tip-toeing through the tulips”.
The UK loses points when it comes to the extent of directors’ liability and the ease of bringing a case. It ranks below jurisdictions such as Kenya, Cyprus, Israel, Australia and the US in court protection.
European countries tend to have light regulation compared with the UK, with the majority of EU jurisdictions scoring six or less out of 10 overall. Greece is the lowest scoring, with a particularly opaque disclosure regime. However, France scores lowest when it comes to directors’ liability, with directors liable for very little.
The research results come as the House of Lords debates the Company Law Reform Bill, which includes proposals to redefine a director’s duty.