Progressing from the dominant shareholder primacy approach existing at common law, it can be argued that the codification of the directors duty at section 172 (S172) of the Companies Act 2006 presents itself as more of a stakeholder friendly duty. However in reality, the approach is saddled closer to a middle ground of the aforementioned, known as enlightened shareholder value. In this essay, the effectiveness of S172 shall be discussed along with the prevalence as a Stakeholder friendly duty.
Shareholder Primacy, Pluralist Approach and Enlightened Shareholder Value
It would be logical to briefly ascertain the lineage of the three theories in which the law can fashion as the principles considerations of the director’s duties.
Firstly, shareholder primacy places the interests of the company’s members as paramount. The focus of corporate decision-making is to maximise the interests of members as whole. Thus these interests come above the interests of the other stakeholders of the company. Ultimately this approach looks to maximising short-term returns to the institutional shareholders.
Alternatively, stakeholder value, referred to as the ‘Pluralist’approach, adopting communitarian style, namely encouraging teamwork, trust and sustainability . Based on the …show more content…
The interpretation of such has been regarded as meaning ‘a catalogue of other factors . Thus meaning the list of stakeholders is non-exhaustive so theoretically directors must take into account all the possible repercussions of their decisions. Therefore potentially, showing that stakeholders are placed at quite a high regard. It must be noted, that the law never prohibited the interests of stakeholders to be taken into account when required for the benefit of the company , however, without explicit acknowledge as there is now, it is improbable that many directors would have done
Shareholder Primacy, Pluralist Approach and Enlightened Shareholder Value
It would be logical to briefly ascertain the lineage of the three theories in which the law can fashion as the principles considerations of the director’s duties.
Firstly, shareholder primacy places the interests of the company’s members as paramount. The focus of corporate decision-making is to maximise the interests of members as whole. Thus these interests come above the interests of the other stakeholders of the company. Ultimately this approach looks to maximising short-term returns to the institutional shareholders.
Alternatively, stakeholder value, referred to as the ‘Pluralist’approach, adopting communitarian style, namely encouraging teamwork, trust and sustainability . Based on the …show more content…
The interpretation of such has been regarded as meaning ‘a catalogue of other factors . Thus meaning the list of stakeholders is non-exhaustive so theoretically directors must take into account all the possible repercussions of their decisions. Therefore potentially, showing that stakeholders are placed at quite a high regard. It must be noted, that the law never prohibited the interests of stakeholders to be taken into account when required for the benefit of the company , however, without explicit acknowledge as there is now, it is improbable that many directors would have done