Legal Advice for Westlands Investment PLC: Case Study

This case study analyzes the legal challenges faced by Westlands Investment PLC, a significant corporate client. The report, prepared by Ellen Collini, addresses three key issues. Firstly, it advises Westlands on its rights and responsibilities as a shareholder in numerous UK companies, emphasizing the distinction between shareholders and directors, statutory rights under the Companies Act 2006, and the UK Stewardship Code. Secondly, it provides guidance on structuring a German subsidiary, explaining the two-tier board system required by German law, its advantages and disadvantages, and its implications for Westlands. Finally, the case study outlines the features of Corporate Social Responsibility (CSR) for the company's planned ethical investment fund, including defining CSR, emphasizing measurable objectives, and highlighting the importance of continuous efforts and evaluating the credibility of CSR activities. The advice aims to help Westlands navigate its legal and strategic challenges effectively.

Assessment 2 Case Study Coursework
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Introduction
Jane Ball, the corporate partner of the company has sent a memo to Ellen Collini, the associate of
the company to prepare a report for Westlands Investment PLC for giving them certain advice on
some of the issues that they are facing currently. Westlands is one of the most important
corporate clients and thus, this report aims to help the company in dealing with its legal issues.
Issue 1:
Westlands is an active fund manager and it has shareholdings in almost 200 companies of UK. In
few of them, they even have 5% or more ownership of the total shares of the company. The
company is very serious about its responsibility as a shareholder but the company is not much
aware about what are its rights and responsibilities as a shareholder.
Advice:
Westland should first understand the difference between a shareholder and a director.
Shareholders are the members of the company as they own its shares1. But directors are the ones
who manage the shares so that its value is maintained and it does not decline in comparison to
the competitors2. Westlands has shareholdings in other companies which mean that they own the
shares in those companies. As shareholders, they are advised to fulfill the following
responsibilities and practice the following rights:
1 Apostolides N, 'Directors Versus Shareholders: Evaluating Corporate Governance In The UK Using The AGM
Scorecard' (2007) 15 Corporate Governance: An International Review
2 Manzaneque M, Merino E and Priego A, 'The Role Of Institutional Shareholders As Owners And Directors And The
Financial Distress Likelihood. Evidence From A Concentrated Ownership Context' (2016) 34 European Management
Journal
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Division of responsibility between shareholders and directors
Directors of the company are responsible for maintaining and practicing the stewardship3. They
have to manage and supervise the activities and practices of the company. They are responsible
for all the decisions of the company that they take by mutually deciding the best course of action
for the company. They are also responsible to serve the interest of the shareholders of the
company. They have to take care of the fact that whatever money the shareholders invest in their
company, it gets utilized properly and all the resources are channelized in a proper direction.
On the other hand, shareholders of the company are responsible for fulfilling the financial
requirements of the company by making investment in its plans and procedures. To some extent,
shareholders are also responsible for the decisions that companies take (Singh, 2015). This is
because when shareholders are dissatisfied with the way directors run the company, they can
remove them or they can refuse to re-elect them.
The statutory rights and responsibilities under UK legislation
The UK legislation follows the Companies Act 2006 for deciding the rights and responsibilities
of shareholders of a company. The Companies Act has a provision of forming and agreement
with the shareholder which has all their rights and responsibilities mentioned in it. Though, the
rights are different as per the class of share that the shareholder has, but the general rights are
given below4. These rights are also applicable to Westlands.
3 Wu S, Chen C and Lee P, 'Independent Directors And Earnings Management: The Moderating Effects Of
Controlling Shareholders And The Divergence Of Cash-Flow And Control Rights' (2016) 35 The North American
Journal of Economics and Finance
4 Ferran E, 'Company Law Reform In The UK: A Progress Report' SSRN Electronic Journal
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 The shareholders have the Right to attend the general meeting of the company and vote in
it. Even if they cannot attend and vote, they can appoint a proxy on their behalf, by
passing a written resolution who can vote in the meeting.
 The shareholders get a dividend which is a part of the profits of the company. So, they
have the right to share the profits of the company in the form of dividend.
 During the winding up of the company and after paying the dues of the creditors, the
shareholders are paid by the company. So, they have a right on distribution of income
during winding up.
 They also have the right to get a copy of the annual accounts of the company so that they
can see the progress of the company.
 Finally, the shareholders have the right to sue the company if they find that it is indulged
in any unlawful activity and they can make the company act in a lawful manner.
Therefore, Westlands has all the above statutory rights and responsibilities under UK legislation
The provisions of the UK Stewardship Code
The Stewardship Code of UK aims to enhance the quality of engagement between the company
and its investors5 so that they are able to improve their long term risks adjusted returns to the
shareholders. The provisions of the code involve the following elements6:
1. The institutional investors have to disclose their policy regarding the discharge of
stewardship responsibilities publically.
2. The investee companies have to be monitored by the institutional investors.
5 Roach L, 'The UK Stewardship Code' (2011) 11 Journal of Corporate Law Studiescy
6 Reisberg A, 'THE UK STEWARDSHIP CODE: ON THE ROAD TO NOWHERE?' (2015) 15 Journal of Corporate Law
Studies
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3. They also have to clearly make the guidelines related to escalation of their stewardship
activities.
4. The institutional investors need to act collectively with the other investors whenever
appropriate.
5. Then, the polices related to the voting rights and the disclosure of the voting have also
to be made clear
6. Periodic reporting of the stewardship and the voting activities are required to be done by
the institutional investors.
The above information along with the applicability of the rights and responsibilities will help
Westlands to get an idea about the shareholdings that they have in other companies and the
things that they can do with their rights and responsibilities.
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Issue 2:
Westland wants to expand its business in the international markets. For implementing this
strategy, the company has decided to incorporate the German subsidiary company so that it can
use the grants that the government of Germany will give because it give grants to those
companies that are incorporated in Germany. So, they are seeking advice on structuring the BOD
of the subsidiary company because there is a two-tier Board system in the German companies.
Advice:
Structuring of the Board
The German Company Law requires setting up a two-tier Board System in the companies that
are incorporated in Germany. The two-tier system, there are two boards. One is the management
board and other is the supervisory board7.
1. The management consists of the executive directors who take the decisions regarding the
objectives of the company and they also implement the necessary measures for the
betterment of the company.
2. The supervisory board consists of the non-executive directors that take steps to monitor
the decisions taken by the management board and the do this on behalf of other parties.
So, Westlands will have to structure its company in this form. It will have to appoint the
members of the management board who can be dismissed by the supervisory board for a cause.
As Westlands will increase its business, it can change the number of members in this board
7 Velte P, 'Improving Corporate Governance Quality Through Modern Controlling- Integrated Reporting In The
German Two Tier System' (2013) 05 Business and Economics Journal
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accordingly. The company of Westland will be represented by the management board in and out
of the court and they will mainly be responsible for running the business jointly. Westland will
get the strategic direction of its business from the management board and the workforce of the
company, its tasks etc. will also be controlled and managed by the management board.
The shareholders of Westlands will appoint the members of the supervisory board at the time of
annual meeting. All the inspections will be done by this board for reviewing the decisions and
actions of the management.
Advantages and Disadvantages of this system
The advantages of this system are that the decision making is split. The management is
responsible for doing the tasks and supervisory is responsible for evaluating it. So, the burden is
less and there is less possibility of a mistake to happen8. The corporate control can be exercised
in a broader way in the two-tier system. There are no serial directors in these systems. The
members cannot be appointed using the personal bias. There are no personal relationships that
can be established here. So, everyone plays a fair game and no personal issues gets built up here.
The dis-advantages of this system are that the flow of information is not superior and it does not
come from the structure and the size of the organization. The decision making gets delayed
because there are two boards and they fail to coordinate sometimes. The board is not able to
understand each other clearly in many circumstances and the involvement of the boards with
each other is also low. This creates problem during the important decision making of the
company.
Following the structure in a German incorporated company
8 Andreas J, Rapp M and Wolff M, 'Determinants Of Director Compensation In Two-Tier Systems: Evidence From
German Panel Data' (2010) 6 Review of Managerial Science
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Westland will have to follow this structure in the Germany incorporate company. This is
because; this structure has been prescribed in the law of Germany. There is a ‘German Corporate
Governance Code’ which prescribes that dual board system must be applied in all the
organizations9. So, Westland will have to structure the new company according to this system.
By adopting this system, the company will be ensuring a sustainable management that will have
a better compliance to the social market system. Also, the monitoring will become easy for
Westland to carry out. Since Westland is planning to create a new system, therefore, it will keep
its performance targets less aggressive if it adopts the dual board system.
Therefore, Westland is advised to structure the subsidiary as per the German Law and provisions.
This is because, it will be able to carry out its activities in a smooth manner in the future, and
otherwise it may have to face the legal issues in the future course of its actions.
9 Dienes D and Velte P, 'The Impact Of Supervisory Board Composition On CSR Reporting. Evidence From The
German Two-Tier System' (2016) 8 Sustainability
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Issue 3:
The Board of Westlands is planning to start a fund related to ethical investments that will invest
in those companies that will have a strong record of the corporate social responsibility. The
company is seeking for advice to get an outline of the features of CSR so that they are aware of
the things that they should look for in the management of the company which is socially
responsible.
Advice:
Westland must be clear about the definition of CSR before starting the ethical investment fund.
This is required because when they will understand the meaning of CSR, they will be able to do
justice to the fund, and they will get to know the ultimate aim of the doing CSR. In simple terms,
corporate social responsibility is a relationship that exists between the companies and the
environment or society in which it operates10. The relationship aims to create mutual benefit for
the company and its stakeholders who are present in the society.
Corporate social responsibility is not only a task, it is policies that must feature clear objectives
of the company and the results that the company wishes to deliver must be measurable. This is
one of the key features of CSR which Westlands must understand. Apart from this, the CSR
policy of the company must give an idea about the working of the company like what the
company does and what is the actual business model of the company. Every policy has to be
implemented with a proper strategy. So, CSR should also have a clear strategy that aims to
change the face of the community in the positive manner and help its people in developing
themselves. The CSR activities must not be called off after one or two events, but, the efforts
10 Patten D and Zhao N, 'Standalone CSR Reporting By U.S. Retail Companies' (2014) 38 Accounting Forum
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should be continuous, though they can be gradual, but the ultimate influence on the society must
be positive11. So, if Westlands is planning to create a ethical investment fund, they must make
sure that the contribution in that fund is flowing continuously, the utilization of those funds are
happening in positive way and all the funds are channelized in the right direction for the
betterment of the society.
In addition to the above features of CSR practice, the management of the company should judge
the credibility of other companies who are involved in CSR activities by evaluating that which
needs of the society are targeted by them and how they are approaching to address those needs12.
For example, some companies identify the need of educating the orphans, giving them medical
care or taking efforts towards their adoption process. So, the management of these companies
can be judged on the basis of how many children they have educated in total, how many
expenses they have incurred for the treatment of children and how many kids have been adopted
till now under the CSR initiative of that company. There are many companies that try to address
multiple social challenges in the environment but, they end up messing up things and no
significant progress is made to solve the social issues.
Westlands must take care of the fact that the policy related to CSR is well-developed and all the
stakeholders of the company, internal or external, understands the policy and support it. the
intention of the CSR initiative by Westland must be clear to all the people and it should give a
detailed explanation about what it intends to do by creating the ethical investment fund, what all
areas will it target and how it will approach the society with that fund. In addition to this,
Westlands must look for qualified partners who are experts in a particular social issue that it
11 Yilmaz I, 'Social Performance Vs. Financial Performance: CSR Disclosures As An Indicator Of Social Performance'
(2016) 2 International Journal of Finance & Banking Studies (2147-4486)
12 Kujala J, Lamsa A and Riivari E, 'CSR As Company Stakeholder Responsibility: Empirical Investigation Of Managers'
Attitudinal Changes' (2015) 2015 Academy of Management Proceedings
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plans to deal with. This will not only help in giving an expert knowledge to the people, but it will
also help in supporting the credibility of the policy of the company.
There is one more important feature of good CSR policy. The policy must be able to evaluate the
results of its implementation. The company must provide the tools to the society by which they
can measure the success of the programs done under CSR. Also, all the tasks under the CSR
initiative must have timelines and deadlines so that the milestone of the policy can be met
easily13. If Westland takes care of these things, it will be able to allocate the capital in this
program in an effective manner and the goals will be met on time. For example, ethical
investment fund that Westland plans to set up aims to help the cancer patients in their treatment.
So, the tools that can be given to people for evaluating the success of this program can be,
representation of data in graphical form, tables, pictures, videos etc. This will help the people to
know that how many people were treated, how many people got success in fighting the dieses
and they were cured, how many patients died during treatment, the way these funds were utilized
etc.
Therefore, it is advised that Westlands must incorporate all the essential features of CSR in its
policy. It must evaluate the other company’s management carefully and should look at their
CSR initiatives from different angles. The effective CSR program will help Westlands in
effectively managing its governance, legal risks, the social and economic threats etc. It will gain
the support of its stakeholders and it will have a positive impact on the society.
13 Costa R and Menichini T, 'A Multidimensional Approach For CSR Assessment: The Importance Of The Stakeholder
Perception' (2013) 40 Expert Systems with Applications
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