Intra-corporate dispute arbitration and minority shareholder protection: a corporate governance perspective (working paper)

Abstract

Litigation has not been the favoured enforcement method of corporate governance for listed companies in the UK. The US experience of arbitration in corporate governance, while not necessarily all transferable in the UK, shows that the use of intra-corporate dispute (‘ICD’) arbitration -- together with the UK soft law and market sanctions approach -- can provide redress to shareholders and achieve the governance objective of management accountability without the negative effect of litigation such as adverse publicity and market abuse by investors. The author argues that the company’s constitution should be the basis for regulating intra-corporate dispute arbitration and can provide the bases for derivative actions and multiparty actions. The ICD arbitration clause should be drafted to define what disputes are covered and who is bound by the clause and should provide arbitrators with specific powers, especially in the areas of evidence and interim remedies, and incorporate a mechanism for consolidation in multiparty actions. Although the UK Companies Act 2006 does not limit the scope of ICD arbitration, there are issues that need to be clarified to provide certainty - notably in the area of the derivative action. Conflicts of law issues present a major risk to UK listed companies seeking ICD arbitration. ICD arbitration can become a method for the UK funds industry to manage their claims in order to fulfil their stewardship duty of the portfolio companies for the benefit of their investors.