Abstract
The issue of profits in company management is as old as the joint stock company but remains ever topical and somewhat controversial. Accountants have one measure for profit and economists another measure, whilst some others want to do away with the idea of profits entirely to ensure social responsibility by companies. The theory of sustainability calls into question the existing theory of profits, apparently based on subsidization and negative externalities, as a result of its failure to factor into company accounts their true environmental costs. Not only does the principle of sustainability appear to validate stakeholders’ rights in corporate profits but it also calls into question the current theories of profit creation and distributional equity based on shareholder theory, as well as existing company laws. This paper examines the relevant issues and argues that new legal rules on corporate accounting and profits reflecting generational equity, rather than reliance on voluntary compliance, are imperative for good corporate governance and sustainable development. Key words: Corporate profits law, CSR/corporate sustainability, sustainability accounting, generational equity, IFRS environmental standards, intra/inter -generational shareholders equity.
Highlights
The issue of profit creation in company management is as old as the joint stock company but remains ever topical, as profit is the usual measure of value creation meant to satisfy the interest of shareholders to a return on their equity and of the effectiveness of company management
Economic profit (Mauboussin, 2002; Merchant and Tatiana, 2009; Mankiw, 2012) is the net profit that emerges after factoring in the cost of capital into profit after tax (PAT)
There is need to extend statutory company law by imposing clear, detailed and comprehensive legal standards and rules for corporate profits and sustainability accounting, beyond a voluntary and ‘values only’ frame work advocated by most proponents of CS or CSR
Summary
Intra and inter-generational equity: Need for new company law AJAI Olawale. The issue of profits in company management is as old as the joint stock company but remains ever topical and somewhat controversial. The theory of sustainability calls into question the existing theory of profits, apparently based on subsidization and negative externalities, as a result of its failure to factor into company accounts their true environmental costs. Does the principle of sustainability appear to validate stakeholders’ rights in corporate profits but it calls into question the current theories of profit creation and distributional equity based on shareholder theory, as well as existing company laws. This paper examines the relevant issues and argues that new legal rules on corporate accounting and profits reflecting generational equity, rather than reliance on voluntary compliance, are imperative for good corporate governance and sustainable development
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