Category Archives: Corporate Law & Business

The new disclosure obligation regarding modern slavery: leveraging market forces to foster a race to the top?

The Modern Slavery Act 2015, requires, amongst other things, businesses with a minimum turnover of £36 million to disclose all steps taken (if any) during the preceding financial year to ensure that slavery and human trafficking are not taking place in their supply chains and business. This is the latest in a line of both international and national reporting obligations (such as the California Transparency in Supply Chains Act of 2010 or the US Securities and Exchange Commission’s Conflict Minerals Rules) aiming at increasing transparency in supply chains and boosting corporate social responsibility. Businesses with a financial year starting today (1 April 2016) will be the first ones to be required to publish such a statement – what can they expect? Continue reading

Accountability and Control in the Modern Corporation: Conclusions (4/4)

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.

Go to: Introduction -> Part II -> Part III -> Conclusion

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.

  1. Shuangge Wen, ‘The magnitude of shareholder value as the overriding objective in the UK: the post-crisis perspective’ [2011] 26 Journal of International Banking Law and Regulation at 326 []
  2. Janice Dean, Directing Public Companies: Company Law & The Stakeholder Society (Cavendish Publishing 2001) at 94 []
  3. Christopher Bruner, ‘Corporate Governance Reform in a Time of Crisis’ [2011] 36 Journal of Corporation Law at 327 []
  4. Paul Davies, ‘Gower and Davies’ Principles of Modern Company Law’ (8th ed. Sweet & Maxwell 2008) at 366 []
  5. See part II supra.; Of note: The Kay Review of UK Equity Markets and Long-Term Decision Making, ‘Interim Report’ [2012] []
  6. See generally: Andrew Keay, The Corporate Objective (Edward Elgar Publishing 2011); []
  7. Andrew Keay, ‘Ascertaining the Corporate Objective : An Entity Maximisation and Sustainability Model’ [2008] 71 Modern Law Review at 683-712 []
  8. Simon Deakin, ‘Kay needs to replace “shareholder value” with “corporate value”’ [20 March 2012] []
  9. Roman Tomasic and Folarin Akinbami, ‘Towards a new corporate governance after the global financial crisis’ [2011] 22 International Company and Commercial Law Review at 249; Christopher Bruner, ‘Corporate Governance Reform in a Time of Crisis’ [2011] 36 Journal of Corporation Law at 341; []

Accountability and Control in the Modern Corporation: Giving effect to a stakeholder perspective (3/4)

This is part III of a series of blog posts looking at the corporate objective and practical steps that could be taken to further either shareholder primacy or stakeholderism.

Go to: Introduction -> Part II -> Part III -> Conclusion

In this part, I shall explore ways to give a voice to stakeholders, which I shall take to mean those who “bear some form of risk as a result of having invested some form of capital, human or financial, something of value, in a firm”1 – these may be called ‘primary stakeholders’2 – an approach endorsed by a substantial number of commentators3.

1. Enlightened Shareholder Value under s.172: a stakeholder perspective?

As mentioned previously, stakeholders are seen as instrumental to achieving a shareholder-oriented goal under s.1724. Besides this critique, flaws are to be found in the low standard imposed5 and the lack of effective enforcement mechanisms6.

Section 172(1) contains a subjective test based on ‘good faith’, an extremely high threshold for any challenge to be mounted against a director7. Furthermore, stakeholders faced with a director’s breach of duty will, unlike shareholders, be unable to initiate derivative proceedings8.

2. A remedy based approach and its enforcement

It has been argued that stakeholderism requires a reformulation of directors’ duties9. Indeed, under a stakeholder perspective, these interests should not automatically be defeated in cases of conflict with shareholders as is the case under s.17210. Yet formulating an alternative duty is extremely difficult in light of competing constituencies. This problem was noted by Berle back in the 1930s11, as well as by his opponent Dodd12.

I would, therefore, suggest removing shareholder interest as the overriding objective under s.172, thereby re-centering the duty onto the long-term future of the company in a way which mandates directors to take into account the interests of all participants13, and would provide for a remedy-based regime, similar to that found in Canada14, for stakeholders.

Stakeholders instrumental to the welfare of the company: derivative actions

Section 238(d) of the Canada Business Corporations Act 1985, which regulates who may initiate derivative claims, includes “any  other  person  who,  in  the  discretion  of  a  court,  is  a   proper  person”15.

I would endorse a similar statutory change in the UK to protect what has been termed ‘associative rights’ (JJ Du Plessis and J Dine, ‘The Fate of the Draft Fifth Directive on Company Law’ [1997] Journal of Business Logistics at 45)). The main beneficiaries would be those, such as employees and lenders, who have a ‘very close’ relationship with the company16, with the premise that their continued support is essential for its survival and prosperity17.

Stakeholder interests valuable in their own right: unfair prejudice

It may also be appropriate, according to the extent of their relationship with the company and their reasonable expectations, for these parties to be able to bring an action where the business of the company has been conducted in a manner which is unfairly prejudicial to their interests18.

I would, however, tend to prefer derivative actions, as these are ‘orientated towards collective outcomes’ as opposed to personal benefits19.

The practicalities of enforcement

Vasudev argues convincingly, based on an analysis of Canadian litigation, that courts are ill-equipped to handle the ‘business’ issues underlining stakeholder disputes20. In light of this, he advocates recourse to specialised agencies to adjudicate stakeholder disputes21. These would not be constrained by legal tradition, and would have a broad representation of interests, thus enabling a holistic approach, whilst also featuring safeguards to management freedom22 (for example, a defense that directors made appropriate and substantive references to stakeholders interests23 ).

3. Direct representation and participation

Germany’s co-determination system grants employees a say in management decisions by offering them board-level representation, as do Denmark, Sweden and Luxembourg24. I believe such approaches, which are in line with Kent Greenfield’s proposals25, are an effective way of balancing the interests of different consistencies. I would, however, agree with Kiarie’s proposal for this model to be implemented differently according to the type of company26.

4. Disclosure requirements

Information can be a powerful tool which empowers stakeholders in the bargaining process, as well as the markets, and places external pressure on the directors27. A good example of this is Apple’s comprehensive ‘Supplier Responsibility Reports’28, and the ensuing public controversy over the working conditions of the employees of their Chinese suppliers29.

As such, it is regrettable that the government sidelined the Operating and Financial Review30 in favour of the watered-down s.417 business review31. This was to provide, as part of an audited process, key factors likely to affect company performance and stakeholders. There have, nonetheless, already been considerable moves in this direction spearheaded by EU law32, and the coalition’s agreement contains a commitment to reinstate the OFR33. Beyond minimum legislative standards, I would seek to encourage industry self-regulation, as this is more likely to create a climate of accountability, as opposed to mere ‘box-ticking compliance’34.

  1. Max Clarkson quoted in: Andrew Keay, The Corporate Objective (Edward Elgar Publishing 2011) at 123 []
  2. Ibid. at 124 []
  3. E Orts and A Strudler, ‘The Ethical and Environmental Limits of Stakeholder Theory’ [2002] 12 Business Ethics Quarterly at 215 []
  4. Shuangge Wen, ‘The magnitude of shareholder value as the overriding objective in the UK: the post-crisis perspective’ [2011] 26 Journal of International Banking Law and Regulation at 321 []
  5. Andrew Keay, ‘The Duty to Promote the Success of the Company: Is it Fit for Purpose?’ [2010] at 29 []
  6. Ibid. at 27 []
  7. Sarah Kiarie, ‘At crossroads: shareholder value, stakeholder value and enlightened shareholder value: Which road should the United Kingdom take?’ [2006] 17 International Company and Commercial Law Review at 338 []
  8.  ‘Moving Towards to Stakeholderism? Enlightened Shareholder Value, Constituency Statutes and More : Much Ado About Little?’ [2011] 22 European Business Law Review at 15 []
  9. Sarah Kiarie, ‘At crossroads: shareholder value, stakeholder value and enlightened shareholder value: Which road should the United Kingdom take?’ [2006] 17 International Company and Commercial Law Review at 338 []
  10. Paul Davies, Introduction to Company Law (2nd ed. Oxford University Press 2010) at 156 []
  11. Alfred Berle, ‘For Whom Corporate Managers are Trustees: A Note’ [1932] 45 Harvard Law Review 1367; Janice Dean, Directing Public Companies: Company Law & The Stakeholder Society (Cavendish Publishing 2001) at 14 []
  12. E.M. Dodd, ‘Is Effective Enforcement of the Fiduciary Duties Of Corporate Managers Practicable?’ [1932] 2 University of Chicago Law Review at 199 []
  13. Janice Dean, Directing Public Companies: Company Law & The Stakeholder Society (Cavendish Publishing 2001) at 127; Partial support in: Canadian Supreme Court in: Peoples’ Department Stores v Wise [2004] SCC 68 at [42]-[43] []
  14. PM Vasudev ‘The Stakeholder Principle, Corporate Governance and Theory – Evidence from the Field and the Path Onward’ [2011] at 25 []
  15. Section 238, Canada Business Corporations Act 1985; Also: Section 216A(1)(c) Singapore Companies Act []
  16. See for eg. ‘Creditors’ Derivative Suits on Behalf of Solvent Corporations” [1979] 88 Yale Law Journal at 1299 []
  17. Janice Dean, Directing Public Companies: Company Law & The Stakeholder Society (Cavendish Publishing 2001) at 19 []
  18. Ibid. []
  19. Andrew Keay, The Corporate Objective (Edward Elgar Publishing 2011) at 255, citing S Botomley, The Constitutional Corporation at 166 []
  20. PM Vasudev, ‘Stakeholders in the Canada Business Corporations Act: An Appraisal and Some Proposals’ [2011] at 38 []
  21. Ibid. at 39 []
  22. Ibid. at 40 []
  23. Janice Dean, Directing Public Companies: Company Law & The Stakeholder Society (Cavendish Publishing 2001) at 177 []
  24. Deryn Fisher, ‘The enlightened shareholder – leaving stakeholders in the dark: will section 172(1) of the Companies Act 2006 make directors consider the impact of their decisions on third parties?’ 20 International Company and Commercial Law Review at 14 []
  25. Kent Greenfield, ‘Reclaiming Corporate Law in a New Gilded Age’ [2008] 2 Harvard Law and Policy Review at 24 []
  26. Sarah Kiarie, ‘At crossroads: shareholder value, stakeholder value and enlightened shareholder value: Which road should the United Kingdom take?’ [2006] 17 International Company and Commercial Law Review 333 []
  27. Company Law Review Steering Group, Modern Company Law: Strategic Framework [1999] at [5.2.16] []
  28. Apple Inc., Supplier Responsibility Reports []
  29. Financial Times, ‘ Apple has Incentive to worry about workers’ rights’ [Feb 15th 2012] ; 
The Economist, ‘Foxconn and labour laws: Using globalisation for good’ [24th Feb 2012] []
  30. The Companies Act 1985 (Operating and Financial Review and Directors’ Report) Regulations 2005; Chapter 6 of Company Law Reform Bill 2006. []
  31. Andrew Johnston, ‘After  the  OFR  :  Can  UK  Shareholder  Value  Still  Be  Enlightened?’  [2006]  7  European Business Organization Law Review 841 []
  32. See for eg. EU Accounts Modernisation Directive 2003/51/EC []
  33. Department for Business, Innovation an Skills, The future of narrative reporting: a further consultation ; Financial Times, ‘OFR reinstated’ [24 May 2010] []
  34. Sarah Kiarie, ‘At crossroads: shareholder value, stakeholder value and enlightened shareholder value: Which road should the United Kingdom take?’ [2006] 17 International Company and Commercial Law Review at 342 []

Accountability and Control in the Modern Corporation: Furthering shareholder primacy (2/4)

This is part II of a series of blog posts looking at the corporate objective and practical steps that could be taken to further either shareholder primacy or stakeholderism.

Go to: Introduction -> Part II -> Part III -> Conclusion

“[t]he UK offers what is arguably the most shareholder-centered corporate law of any of our core jurisdictions” [Paul Davies & Klaus Hopt]1

As we shall see, shareholders in the UK possess considerable powers, and clearly are at the center of the corporate objective, especially when compared to the US2. How may they be further empowered and see this position preserved?

A. Preserving the market for corporate control

The UK takeover regime3 is a unique construction which grants considerable discretion to shareholders to decide the outcome of hostile bids, thus reinforcing their power in the governance equation4. These regulations, which are enforced by a self-regulatory body of market actors, will, for example, prevent the target board from taking frustrating actions without shareholder approval5.

Recent changes to the Takeover Code, have introduced new obstacles to non-recommended bids, namely in the form of the tighter ‘put-up or shut-up’ provisions, as well as enhanced provisions on public disclosure6. If these changes, as has been suggested7, are shown to shift the balance of power too far away from shareholders towards the directors of the target board, a repeal would be advisable to preserve this valuable disciplinary mechanism8.

B. Decision rights

Besides the acceptance of hostile takeovers, shareholders also have considerable powers to control management through their decision rights9. Directors’ removal is one such power, requiring only 5% of shareholders to call a meeting to decide the status of a director by a majority vote10. The power of unilateral amendment of the company’s constitution by special resolution11, as well as the power to ‘direct the directors’ to “take, or refrain from taking, specified action”12, their power of ratification13, and the requirement of their ascent to adjustments of the capital structure14, also further underline the stronghold shareholders enjoy over management15.

As Paul Davies has observed, these strong powers serve as a powerful inducement to directors to follow shareholders’ wishes16, and, as such, I do not propose to change these.

C. Reinforcing the legal duties of the directors

Salomon ((Salomon v Salomon Ltd [1897] A.C. 22))  makes it clear that at law the company is a separate legal entity from shareholders, and directors should, thereby, pursue the company’s interest as their objective17. However, this concept, influenced by the preponderance of shareholder capitalism, has ostensibly been equated to representing the financial concerns of shareholders above all others18. This is best seen in Greenlagh19, where Evershed M.R. said “‘the company as a whole’… means the [shareholders] as a general body”20.

Whilst director’s core duties are towards the company itself21, s.17222 does give an express statutory footing to shareholder primacy (the other non-exhaustive considerations listed being only relevant insofar as they impact shareholders’ interests23. I would agree with Hannigan, that the scope of these duties is generally appropriate24, although the subjective nature of the “good faith” test25 and the absence of even a basic reasonableness test are to be regretted26. Raising this standard would have the welcome effect of reducing directors’ “unpoliced discretion”27.

Giving teeth to ultra vires

One particular duty which has been neutered is the duty to act within the company’s constitution28. Originally formulated in Ashbury29, this duty provided shareholders with quasi-managerial power to control directors by rendering void any transaction by the company which was beyond the scope of its objects, or voidable in the case of acts by directors beyond their capacity30. These powers have been gradually eroded under common law31, as well as through statute32. Whilst powers to seek restraint are still available ex-ante33, the only ex-post causes of action available are for breach of directors’ duties, or unfair prejudice, where this can be established by the shareholder34.

I would, therefore, advocate restoring these residual managerial powers in the hand of shareholders, to the fullest extent permitted under our European obligations35, as they could provide an effective weapon in the face of unrestrained directors36, especially for shareholders who are not necessarily in a strong bargaining position and have few methods to monitor directors37.

Reinvigorating private enforcement

Enforcement of these duties by shareholders has been described as ‘Herculean’38. Indeed, research by Armour suggests that private lawsuits against directors of publicly traded companies under corporate law are “virtually nil”39. Part 1140 sets out a number of restrictive criteria governing the admissibility of a derivative claim, the effect of which is to “increase the length of hearings and [costs]”41, thus deterring litigants42. Besides these procedural issues, strong judicial deference towards management decisions is undoubtedly an obstacle43.

I would argue, in line with Hannigan’s conclusions, that the lack of enforcement undermines the mandatory aspect of these obligations44, and would seek to reinvigorate these by: removing ratification as a bar to action45, and greatly streamlining the leave process so as to avoid these becoming ‘mini-trials’46.

Furthermore, I would, in line with Arden LJ’s dicta47, advocate expanding the use of Wallersteiner orders48, which indemnify shareholders’ costs under a derivative action, to cases under s.996, so as to make this action more attractive49.

D. Reducing agency costs through investor activism

Studies show that the ‘agency problem’50 linked to dispersed ownership is a reality in the UK51. What can be done to curb ‘divide and rule’ by directors52?

The UK Stewardship Code53, introduced in 2010, is aimed at making directors more responsive and accountable to shareholders by promoting more active “engagement” by  institutional investors54. Of particular interest are the recommendations on escalation, which, in the absence of constructive responses by the board, suggest a series of measures ranging all the way to the removal of directors55.

Given the key role played by institutional investors in the emergence of a pro-shareholder approach to takeover regulation56, a greater involvement on their part would be welcome. If, however, the current reforms are not effective, due consideration should be given to the proposal, advanced in the Myners Report57, to legally mandate fund managers to monitor and attempt to influence boards where this can be reasonably expected58. One must, however, note that the homogeneity amongst institutional investors which has historically guided shareholder centric self-regulation is rapidly starting to erode59, especially in light of the increase in foreign investors60.

  1. Paul Davies & Klaus Hopt, ‘Control Transactions’ in Reinier Kraakman et al., The Anatomy of Corporate Law: A Comparative and Functional Approach (Oxford University Press 2004) at 3 []
  2. Christopher Bruner, ‘Power and Purpose in the ‘Anglo-American’ Corporation’ (UCLA School of Law 2010) at 581 []
  3. See Part 28, Companies Act 2006; The Panel on Takeovers and Mergers, The Takeover Code (10th ed. 2011) []
  4. Christopher Bruner, ‘Power and Purpose in the ‘Anglo-American’ Corporation’ (UCLA School of Law 2010) at 607 []
  5. The Panel on Takeovers and Mergers, The Takeover Code (10th ed. 2011) at B1 []
  6. Ibid., See for eg. Financial Times, ‘UK takeover rules put targets on defensive’ [30th October 2011] ; Herbert Smith, ‘The UK takeover regime – the Takeover Code changes and their impact’ [Firm Briefing] []
  7. Financial Times, ‘Secret suitors outed’ [19 September 2011] ; Financial Times, ‘UK’s grip on M&A market loosens’ [30th October 2011] ; Mishcon de Reya, Changes to the Takeover Code: Shifting the Balance of Power [Firm Briefing]; []
  8. Henry Manne, ‘Corporate Governance: getting back to market basics’ in Alessio Paces, The law and economics of corporate governance: changing perspectives (Edward Elgar Publishing 2010) at 97 – Available online at: []
  9. Christopher Bruner, ‘Power and Purpose in the ‘Anglo-American’ Corporation’ (UCLA School of Law 2010) at 582 []
  10. Sections 168, 282, 303, 304 Companies Act 2006; The Companies (Shareholders’ Rights) Regulations, 2009, S.I. 2009/1632 []
  11. Sections 18–20, 283 Companies Act 2006 []
  12. The Companies (Model Articles) Regulations, 2008, S.I. 2008/3229, art. 4(1), schedule 3 []
  13. Section 239 Companies Act 2006 []
  14. Sections 641(1), 716(1) Companies Act 2006 []
  15. Christopher Bruner, ‘Power and Purpose in the ‘Anglo-American’ Corporation’ (UCLA School of Law 2010) at 605 []
  16. Paul Davies, ‘Gower and Davies’ Principles of Modern Company Law’ (8th ed. Sweet & Maxwell 2008) at 71 []
  17. See for eg. Percival v Wright [1902] 2 Ch. 421; Mutual Life Insurance Co of New York v Rank Org Ltd [1985] B.C.L.C 11; Shuangge Wen, ‘The magnitude of shareholder value as the overriding objective in the UK: the post-crisis perspective’ [2011] 26 Journal of International Banking Law and Regulation at 327 []
  18. Parke v Daily News [1962] Ch. 927 Ch D; Heron International Ltd v Lord Grade [1983] B.C.L.C 244 CA; Daniel Attenborough, ‘How directors should act when owing duties to the companies’ shareholders: why we need to stop applying Greenhalgh’ [2009] 20 International Company and Commercial Law Review at 339 []
  19. Greenlagh v Ardene Cinemas [1951] Ch. 286 CA []
  20. Ibid. at 291; also see Nourse L.J in Brady v Brady [1988] B.C.L.C 20 at 40 []
  21. s.170(1) Companies Act 2006 []
  22. s.172 Companies Act 2006 []
  23. Daniel Attenborough, ‘How directors should act when owing duties to the companies’ shareholders: why we need to stop applying Greenhalgh’ [2009] 20 International Company and Commercial Law Review at 345; Andrew Keay, ‘The Duty to Promote the Success of the Company: Is it Fit for Purpose?’ [2010] at 35) []
  24. Brenda Hannigan, ‘Board failures in the financial crisis – tinkering with codes and the need for wider corporate governance reforms: Part 1’ [2011] 32 Company Lawyer at 370 []
  25. See for eg. Jonathan Parker J in Regentcrest plc v Cohen [2002] 2 B.C.L.C. 80 at [124] []
  26. Andrew Keay, ‘The Duty to Promote the Success of the Company: Is it Fit for Purpose?’ [2010] at 13 []
  27. Ibid. at 33-34 []
  28. Stephen Griffin, ‘The rise and fall of the ultra vires rule in corporate law’ [1998] 2 Mountbatten Journal of Legal Studies at 5 []
  29. Ashbury Railway Carriage & Iron Co v Riche [1874] L.R. 7 H.L 1372 []
  30.  Lorraine E Talbot, ‘A contextual analysis of the demise of the doctrine of ultra vires in English company law and the rhetoric and reality of enlightened shareholders’ [2009] 30 Company Law at 324 []
  31. Attorney General v Great Eastern Railway Co [1879] L.R 5 App. Cas. 473 HL; Bell Houses Ltd v City Wall Properties [1966] 1 Q.B. 207 []
  32. Section 108(1) Companies Act 1989; s. 31(1) Companies Act 2006; s. 39 Companies Act 2006 []
  33. Section 40(4) Companies Act 2006 []
  34. Paul Davies, ‘Gower and Davies’ Principles of Modern Company Law’ (8th ed. Sweet & Maxwell 2008) at 479 []
  35. Paul Omar, ‘Powers, Purposes and Objects: The Protracted Demise of the Ultra Vires Rule’ [2004] 16 Bond Law Review at 108 []
  36. Lorraine E Talbot, ‘A contextual analysis of the demise of the doctrine of ultra vires in English company law and the rhetoric and reality of enlightened shareholders’ [2009] 30 Company Law at 348 []
  37. Ibid. at 355 []
  38. D Sugarman quoted in Andrew Keay, ‘Company Directors Behaving Poorly : Disciplinary Options for Shareholders’ [2007] Journal of Business Law at 676 []
  39. Armour et al, ‘Enforcement of Corporate Law: An Empirical Comparison of the United Kingdom and the United States’ (2009) 6 Journal of Empirical Legal Studies at 690 []
  40. Part 11, Companies Act 2006 []
  41. Brenda Hannigan, ‘Board failures in the financial crisis – tinkering with codes and the need for wider corporate governance reforms: Part 1’ [2011] 32 Company Lawyer at 370 []
  42. Arad Reisberg, ‘Shadows of the Past and Back to the Future: Part 11 of the Companies Act 2006 (In)Action’ [2009] 6 European Company and Financial Review at 219 []
  43. See for eg. Continental Assurance Co Ltd [2001] B.P.I.R 733; Liquidator of Mariani Ltd v Dickensen [2003] EWHC 334 []
  44. Brenda Hannigan, ‘Board failures in the financial crisis – tinkering with codes and the need for wider corporate governance reforms: Part 1’ [2011] 32 Company Lawyer at 369-370 []
  45. Andrew Keay and Joan Loughrey, ‘Derivative Proceedings in a Brave New World for Company Management and Shareholders’ [2010] 3 Journal of Business Law at 162 []
  46. Ibid. at 177 []
  47. Clark v Cutland, [2003] EWCA Civ 810, [2003] 2 BCLC 393 at [35] []
  48. Wallersteiner v Moir (No. 2) [1975] QB 373 []
  49. Petri Mantysaari, Comparative corporate governance: shareholders as a rule-maker (Springer 2005) at 101- Extract available at: []
  50. See: Berle and Means, The Modern Corporation and Private Property (2nd revised ed. Transaction Publishers 1991) []
  51. Paul Davies, Introduction to Company Law (2nd ed, Oxford University Press 2010) at 136 []
  52. Financial Times, ‘UK: Stewardship code aims to encourage collaboration’ [Oct. 6th 2010] []
  53. Financial Reporting Council, The UK Stewardship Code [2010] []
  54. Op. Cit. 1 [Intro]; Financial Times, ‘UK: Stewardship code aims to encourage collaboration’ [Oct. 6th 2010] []
  55. Financial Reporting Council, Implementation of the UK Stewardship Code [2010] at 1–2 ; Christopher Bruner, ‘Corporate Governance Reform in a Time of Crisis’ [2011] 36 Journal of Corporation Law at 319 []
  56. Andrew Johnston, ‘Takeover Regulation: Historical and Theoretical Perspectives on the City Code’ [2007] 66 Cambridge Law Journal at 436–41 []
  57. HM Treasury, Institutional Investors in the United Kingdom: A Review [2001] []
  58. Paul Davies, Introduction to Company Law (2nd ed, Oxford University Press 2010) at 136 []
  59. Christopher Bruner, ‘Corporate Governance Reform in a Time of Crisis’ [2011] 36 Journal of Corporation Law at 330 []
  60. Brian Cheffins, ‘The Stewardship Code’s Achilles’ Heel’ [2010] 73 The Modern Law Review at 1020 []

Accountability and Control in the Modern Corporation: Reinvigorating the Corporate Objective in UK Company Law and Corporate Governance Through the Prisms of Shareholder Primacy and Stakeholderism (1/4)

This is part I of a series of blog posts looking at the corporate objective and practical steps that could be taken to further either shareholder primacy or stakeholderism.

Go to: Introduction -> Part II -> Part III -> Conclusion

“It makes a great difference in my attitude towards my job as an executive officer of the General Electric Company whether I am a trustee of the institution or an attorney for the investor. If I am a trustee, who are the beneficiaries of the trust? To whom do I owe my obligations?”1

 – Owen D. Young (1929)

Determining the corporate objective has been said to be the “most important theoretical and practical issue confronting us today”2 and has been the subject of much literature. In 2000, Hansmann and Kraakman controversially declared ‘an end of history for corporate law’3. A decade later, in light of major governance crises in the early 2000s and the recent financial crisis, the question of who the company should favour is less settled than ever4.

In this paper I shall, after considering the current state of company law and governance, put forward potential reforms which seek to further the competing theories of shareholder primacy and stakeholderism.

I shall first argue, with regards to shareholder primacy (part II), that the UK already presents one of the most shareholder-centered systems. I shall, nonetheless, put forward proposals to enhance their position, with the primary aim of reducing agency costs and improving company law and corporate governance in light of dispersed share-holding.

Turning to stakeholderism (part III), I shall then argue that the current position of stakeholders under company law is deficient and will explore a number of proposals including a remedy-based approach for the protection of their interests, a new method for adjudicating disputes, direct board representation, and wider disclosure duties.

  1. Owen D. Young (1929) cited in E. Merrick Dodd, ‘For Whom are Corporate Managers Trustees?’ [1932] 45 Harvard Law Review at 1145 []
  2. James Walsh, ‘Introduction to the “Corporate Objective Revisited” Exchange’ [2004] 15 Organization Science at 349 []
  3. Henry Hansmann and Reinier Kraakman, ‘The End Of History For Corporate Law’ [2000] 89 Georgetown Law Journal at 439 []
  4. See for eg: The Economist, ‘Shareholders v stakeholders: A new idolatry’ [April 22nd 2010] []