Some of the most sweeping changes for U.K. companies since passage of the Companies Act of 1985 took effect when the Companies Bill became law on Nov. 8.

The 696-page bill, considered Britain's longest piece of legislation, is intended to enhance shareholder engagement and promote a long-term investment culture, among other objectives.

The new law would implement several key changes such as requiring more detailed reports on environmental and social impacts, and calling for shareholders to ratify directors' acts. The latter is standard practice in several European countries, including Germany, the Netherlands, Austria, and Switzerland.

Other changes include requiring shareholder approval of director severance contracts that allow for awards of more than two-times a director's annual salary, as well as provisions allowing for auditor indemnification with shareholder approval.

Investors also have focused on measures that ostensibly place greater liability on directors, though some experts believe that the new rules allowing shareholders to sue directors who "don't promote the success of the company," will not lead to an up-tick in lawsuits against directors.

"I don't think this act will make a blind bit of difference to my practice," Edward Sparrow, a partner at London-based Ashurst, told Bloomberg News. Sparrow noted it is more difficult to prove fraud in England than it is in the U.S., and that lawyers had little incentive to take on such cases because the law barred them from receiving a percentage of winnings when working on a contingency basis.

Other experts warn that rules empowering investors to go after directors could be far-reaching but that it is too early to determine their precise impact.

The new law also affects rules on mergers and acquisitions. The new Companies Bill codifies European Union rules on takeovers, replacing the City Code on Takeovers. Britain's Takeover Panel will remain the regulatory authority overseeing such transactions and will receive greater statutory powers.

The new law will include squeeze-out and sell-out rights under which a bidder has the right to buy out minority shareholders, and minority shareholders have the right to require a successful bidder to acquire their shares, respectively. Both provisions would come into effect once a bidder has acquired 90 percent of the target firm's shares.

Meanwhile, companies whose reporting years begin after Nov. 1 must disclose compliance with new provisions of Britain's Combined Code on Corporate Governance, a set of best practice requirements that govern all London Stock Exchange-listed companies. The code, dubbed Britain's governance "bible," was last revised earlier in the year.

The changes will:

*Amend the existing restriction on the company chairman serving on the remuneration committee. The changes would allow the chairman to do so (but recommends against serving as chair of the committee) if the chairman is deemed independent on appointment.
*Provide a "withheld" vote option on proxy appointment forms to enable shareholders to indicate if they have reservations on a resolution but do not wish to vote against. Many listed companies already provide this option. A "withheld" vote is not a vote in law and would not count in the calculation of the proportion of the votes for and against the resolution.
*Enable companies to meet the requirement to make the terms of reference of board committees available by placing them on their Web sites.

The code was last revised in 2003.