This is the conclusion to a series of blog posts looking at the corporate objective and practical steps that could be taken to further either shareholder primacy or stakeholderism.
Shareholder primacy in the corporate governance sphere is deeply rooted in the perspective of shareholders as controlling agents1. We have seen that shareholders in the UK are already at the center of the governance equation. It is, however, clear that despite having extensive powers, shareholders may not necessarily be in a position to exercise these. As such, I have explored ways of encouraging activism by institutional shareholders, thereby reducing agency costs and holding directors more accountable. I have also sought to circumscribe directors’ discretion by raising the standard of their duties and restoring the ultra vires doctrine. For these changes to be effective, they must be backed up by a credible threat of private enforcement, I have, accordingly, suggested ways to facilitate this. Finally, I have sought to put forward ways to preserve the market for corporate control, as it is a strong alternative accountability mechanism which does not rely on active shareholder involvement.
The position of stakeholders is very different. Under current arrangements, stakeholders have a purely instrumental role. In light of this, I have explored ways to re-center director’s duties onto the company and away from shareholders, whilst also providing certain classes of stakeholders with remedies, and exploring how to effectively enforce these. I have also explored direct board-level stakeholder representation, which is said to represent one of the best method of ensuring stakeholderism’s objective that “all parties work together for a common goal and obtain shared benefits”2. Beyond this, I have advocated for substantially wider disclosure requirements, through a combination of legislative intervention and industry regulation, which will empower both primary and secondary stakeholders, and make directors more accountable.
It has been persuasively argued that the UK corporate governance system has been subjected to considerably less pressure to account for the interests of stakeholders in light of the UK’s robust welfare state3 and the traditional view of corporate governance as ‘private ordering’4. Enlightened Shareholder Value in the Companies Act, whilst appearing to move towards stakeholderism, does little to depart from this shareholder-centric tradition5. It is, therefore, unlikely that we will see an explicit change of perspective from shareholders to stakeholders in the near future.
Perhaps a better model would be Andrew Keay’s entity maximisation and sustainability theory6. A number of the proposals explored in this paper may be reconciled with this model, which focuses on the company as an independent legal entity and enjoins directors to maximise its wealth and sustain it in the long-term, whilst taking into account the investments made by various stakeholders (including shareholders)7. I would, accordingly, argue that the company’s foremost duty and responsibility to society should be to sustain itself8. Given the current climate, there is much to be said for such a focus9.
- Shuangge Wen, ‘The magnitude of shareholder value as the overriding objective in the UK: the post-crisis perspective’  26 Journal of International Banking Law and Regulation at 326 [↩]
- Janice Dean, Directing Public Companies: Company Law & The Stakeholder Society (Cavendish Publishing 2001) at 94 [↩]
- Christopher Bruner, ‘Corporate Governance Reform in a Time of Crisis’  36 Journal of Corporation Law at 327 [↩]
- Paul Davies, ‘Gower and Davies’ Principles of Modern Company Law’ (8th ed. Sweet & Maxwell 2008) at 366 [↩]
- See part II supra.; Of note: The Kay Review of UK Equity Markets and Long-Term Decision Making, ‘Interim Report’  [↩]
- See generally: Andrew Keay, The Corporate Objective (Edward Elgar Publishing 2011); [↩]
- Andrew Keay, ‘Ascertaining the Corporate Objective : An Entity Maximisation and Sustainability Model’  71 Modern Law Review at 683-712 [↩]
- Simon Deakin, ‘Kay needs to replace “shareholder value” with “corporate value”’ [20 March 2012] [↩]
- Roman Tomasic and Folarin Akinbami, ‘Towards a new corporate governance after the global financial crisis’  22 International Company and Commercial Law Review at 249; Christopher Bruner, ‘Corporate Governance Reform in a Time of Crisis’  36 Journal of Corporation Law at 341; [↩]