Don't trust a lawyer to do your sums

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Despite being one myself, I have always had a somewhat disparaging stance regarding corporate finance lawyers. When I hear stories like the following (and as with all good stories, this is a true story) I feel rather vindicated.

There is rule that a company listed on the London stock market has to have at least 3 independent directors, and the recommendation is that you have at least a third of the board of directors be made up of independent directors.

My friend had a client shoot her the following question:
"We have 3 independent directors here. The total number of directors we have is 7. Do we meet the legal requirements?"
Her colleague sent out a reply to the client: "You need 9 directors."
My friend went to the partner in charge and pointed out the colleague's error*. The partner told her colleague to send out a rectifying email. The colleague sent out the following email: "Apologies for the email below. 3 is fine, but you need 9 directors."

I know, I know. I'm getting old. I found the story funny.

*The simple answer to the client's question, is of course, YES, you comply. The client has at least 3 independent directors, which make up more than one third of the total board of 7, since 2.333333... is one third of 7. The colleague calculated instead that 9 was needed because 3 times 3 is 9. If you think you need me to call you to explain why my friend's colleague was wrong, consider becoming a corporate finance lawyer (unless you already are one, in which case you should embrace your calling wholeheartedly).

10:01 PM |