Lloyd's Maritime and Commercial Law Quarterly
Enlightened shareholder value, the reform of the duties of company directors and the corporate objective
Andrew Keay *
This article discusses the shareholder value principle and questions whether it has been applied regularly in United Kingdom law and practice, then examines the enlightened shareholder value principle as provided for by the Company Law Review Steering Group’s Final Report on company law reform, recent White Papers and the Company Law Reform Bill. It is argued that in effect the enlightened shareholder value principle, favoured by government as the approach to be followed by directors in the running of companies, is only marginally different from the classic shareholder value paradigm, and is likely to grant directors unpoliced discretion in their decision-making.
I. INTRODUCTION
On 1 November 2005, the United Kingdom Government introduced the Company Law Reform Bill (“the Bill”) into Parliament. The Government’s intention is, with the enactment of the Bill, to provide a complete reform of UK legislation regulating corporate law. The Bill is the culmination of a substantial amount of work performed over some seven years. It started with the appointment of the Company Law Review Steering Group (“CLRSG”) in 1998 by the Department of Trade and Industry to undertake a comprehensive review of company law in the UK, the most wide-ranging since the middle of the 19th century, and to formulate a framework of company law which “facilitates enterprise and promotes transparency and fair-dealing”.1
The CLRSG compiled a number of consultation reports between 1998 and 2000 and in July 2001 delivered a final report to the Government. In response to this report the Government published several White Papers, prior to formulating the Bill.
One of the aims of the Bill is to reform a number of aspects of the law relating to the duties of company directors. The aspect with which this article is concerned is the decision of the Government to implement what the CLRSG termed “enlightened shareholder value” when it comes to determining how directors are to manage their companies. The role and work of directors in managing their companies is obviously a critical aspect of
* Professor of Corporate and Commercial Law, Centre for Business Law and Practice, School of Law, University of Leeds. I thank my research assistant, Daniel Attenborough, for research support in relation to Part III.
1. Company Law Review, Modern Company Law for a Competitive Economy
(DTI, London, 1998), Foreword.
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