Directors owe strict legal duties to the companies they serve and, if they breach them dishonestly, the criminal law will intervene. In a case on point, the disgraced CEO of a FTSE 250 company who pocketed millions by entering into a corrupt side deal received a lengthy prison sentence.
The highly successful company, valued at £2.5 billion, was in the business of oil and gas exploration and production. Following a shareholders’ revolt in respect of proposed increases to its management’s pay and bonuses, however, the CEO took the view that he and his elite team of traders were not being paid enough.
Unable to increase his and his team’s pay through the publicly visible front door, he decided to do so through the back door instead. Unbeknown to his fellow directors, he entered into a corrupt arrangement with one of the company’s operating partners whereby $9.2 million of the company’s money was covertly and circuitously diverted to him. He arranged for a further $8.2 million to be received by members of his team.
After the existence of the side-deal was discovered, he was sacked and prosecuted. Following a trial, he was convicted of one count of fraud and two of money laundering and was sentenced to six years’ imprisonment.
In dismissing his challenge to those convictions, the Court of Appeal found that he had received a fair trial. In his summing up of the case, the trial judge had made it clear to the jury that they could only find him guilty if satisfied beyond reasonable doubt that he had dishonestly abused his position as a director and that the side deal was contrary to the company’s financial interests.
The Court rejected as divorced from reality the CEO’s argument that his motive had been noble and that the side deal had positively benefited the company by incentivising and enabling the retention of his team in a highly competitive market. His conduct was intended to deceive the company’s shareholders and had significantly affected the confidence of all of its stakeholders. Arguments that his sentence was manifestly excessive were also dismissed.
R v Shahenshah. Case Number: 201804536 C2