Will risk reforms need lawyers' help?
8 February 1999
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Charles Mayo, partner, Simmons & Simmons
Richard Barham, partner, Wilde Sapte
Nick Davies, head of c & c, Orchard
UK-listed businesses must prepare for new proposals by the Turnbull
Committee which threaten to turn their methods of reporting internal
controls upside down.
Companies must take a risk-based management approach to all threats to the
company - including service quality, general operation of the company and
human error - rather than just financial risk.
Companies will then have to disclose their system for dealing with risks
in the company accounts.
Nigel Turnbull, chairman of the committee and finance director of Rank
Group, says companies must act now rather than at the end of the year, when
the reforms become effective.
But will the controls create a mountain of paperwork for lawyers to
untangle or will the reforms be less extreme than imagined?
Nick Davis, head of Orchard's company and commercial department, thinks
Turnbull has not exaggerated the impact of the reforms.
Davis says: "The reforms will create more bureaucracy for companies."
But he says this offers an opportunity for lawyers to get involved in
company issues at a deeper level.
He says: "We are going to be called upon to help clients restructure
themselves so they have the right accountable framework.
"They need advice so they can implement guidelines for quality control.
This will give a more hands-on approach in the running of their company."
He adds: "That means we will be more crucial to our clients' business.
"If you are a key element for clients they are less likely to go
elsewhere. Clients will stick with good lawyers and advise others to use
He sees these reforms as evidence that corporate lawyers are extending
their role in the City.
"The Turnbull proposals are pushing lawyers on to the next stage of being
businessmen as well as legal experts. We will be helping companies to set
things up from scratch."
But Richard Barham, company and commercial partner at Wilde Sapte, does
not think the reforms will have such a large impact.
Barham says: "I don't think the reforms will really expose much. Directors
have certain duties to their shareholders anyway."
But he thinks that in the short-term lawyers will be needed to advise
companies on following the code accurately.
He says: "I can see the potential for more work for lawyers but...once
directors can get their heads around the reforms they will be able to
fulfil the new obligations without consulting lawyers. Most companies are
capable of regulating themselves."
But Barham thinks the reforms go too far in dictating to companies how to
He says: "The reforms are a pest without changing much. They go into
details that waste time for companies.
"They will take up management, lawyers' and accountants' time to fulfil a
list of obligations when there may not have been any issue to contend with
in the first place."
Charles Mayo, corporate partner at Simmons & Simmons, agrees that the
reforms may add to burdens on companies, but he takes a slightly different
view on this.
He says: "I wrote to the Institute of Chartered Accountants (which is
sponsoring the proposals) to voice my concerns about the reforms. These are
one of the most significant measures to emerge from the Combined Code,
which came into effect last year.
"They have a large impact on directors' duties and create a burden on
audit committees generally."
But he thinks the complexities involved in complying with the code may not
affect large companies a great deal as they have large sophisticated
management structures and many advisers.
However, he says smaller companies may struggle to comply with the
numerous duties and responsibilities they impose.