CORPORATE LAW ASSESSMENT

Corporate Law Assessment

Corporate Law Assessment

Introduction

The issue of corporate governance is becoming of ever increasing social significance. The government have made this clear with their 'long-term fundamental review of core company law', which has culminated in the introduction of the Company Law Reform Bill into parliament on the 3rd November 2005. The selection of the appropriate model for corporate governance has been a contentious subject since the famous debates between Adolf Berle and Edwin Merrick Dodd JR in the early nineteen-thirties.

Stakeholder / Shareholder

Young identified groups such as shareholders, employees, customers and the public at large as those groups of which he saw himself being a trustee thereof. This was the embryonic viewpoint which has come to argue that corporate governance should include all stakeholders defined as 'those whose continued support is necessary if the firm is not to be seriously damaged'. It has been argued by pro-stakeholder scholars that the shareholder primacy approach, which has certainly dominated the UK jurisprudence and case-law on the issue, 'limits the goal of corporate governance to profit maximisation'. The dichotomy is quite clear and falls between 'all the interest which the corporation affects' and 'its absentee owners'.

The academic debate has generally tended to favour the stakeholder model and yet for some reason shareholder primacy remains the ideological touchstone for the judiciary in this country and the predominant explanation, recently given the legislative stamp of approval, from Berle to modern day has been the lack of a practical way of instituting the legal framework for such a duty. It is as Sir Samuel Britton stated a fact that 'If directors are accountable to everybody for everything, they will end up being accountable to nobody for anything.'

However, an important factor to remember is that the tendency to exaggerate the dichotomy between the stakeholder and shareholder models leads to a view that the interests of shareholders must be sacrificed at the expense of including other stakeholders; however this isn't strictly the correct approach. The stakeholder model advocates a more pluralist approach to business which merely admits that the profit-oriented interests of shareholders aren't the only interests which are relevant to the running of a company. This must be borne in mind when we consider the arguments in the next section surrounding what is the correct business ends of a corporation and to what degree the stakeholder model is compatible with those ends.

Business Ends and Compatibility with Stakeholder Model

One of the favourite paradigms for pro-stakeholder arguments is the large multi-national corporations. These large businesses by virtue of their size cause commentators to question whether the 'business ends' of that corporation can be fully understood in a profit-maximising notion. This means that inevitably commentators have argued they cannot be considered purely private entities and that to a degree they are public organisations. It has long been argued, in fact it was the mainstay of Dodd's criticisms of Berle, that shareholder's have become alienated from companies. They argue that shareholders are passive owners of the company and 'simply a ...