Corporate governance, shareholder value and societal expectations

Abstract

PurposeThis purpose of this paper is to examine four separate though interconnected questions concerning corporations operating, in Anglo American jurisdictions.Design/methodology/approachThe paper first examines the nature of the limited liability corporation as an entity dedicated to maximizing shareholder value, and how far this role is consistent with the pursuit of wider policies of corporate social responsibility (CSR). Second, it reviews the ownership arrangements of the corporation, the fiduciary duties of board directors and how this is translated into the task of maximizing shareholder value through the pursuit of profits. Third, it investigates how directors position themselves commercially in maximizing shareholder value and whether shareholders express views on how shareholder value can best be maximized. Finally conclusions are drawn on how best corporations and their directors can address the challenge of meeting shareholder value and how far this implies realignment in terms of wider societal expectations. The method of research used includes an examination of statute law governing the corporation, judge's law, regulatory law, other soft law in the context of outsider controlled capital markets. Relevant published research material is also declared in the bibliography.FindingsConclusions drawn suggest that the premise of maximization of shareholder value may very well entail the pursuit by directors of wider social and economic objectives consistent with CSR, if this is consistent with the enhancement of shareholder value. They also point to a lack of clarity on the question of what is expected of directors in meeting their fiduciary and broader director's duties as expressed in the objective of maximizing shareholder value. Evidence suggests that there is little effective communication between shareholders and directors on how best shareholder value can be maximized. Specifically the analysis focuses on how best to overhaul the mechanisms of governance and accountability if directors and the shareholders they represent are to develop and execute rational commercial policies aimed at maximizing shareholder value.Originality/valueThe paper breaks new ground in linking CSR to the enhancement of shareholder value and in suggesting that directors may be negligent in their duty to promote shareholder value if they fail do so. The paper should be of interest to company directors, company legal advisors; other corporate lawyers involved in litigation against directors, and policy makers in government.