Structure and Reform of Corporate Governance in the United Kingdom in Relation to the Shareholder Versus the Stakeholder Theory

Abstract

Corporate Governance structure in the UK has traditionally been based on the shareholder model which propounds shareholder primacy in the entire functioning of a corporate structure. Shareholder wealth maximization has been the primary objective in the working of all corporations in the United Kingdom. Opposed to this theory has been the stakeholder model which advocates equal participation of the major constituents the primary one being the creditors and the employees. It was not before the early 1990s that major changes in the Corporate Governance structure started taking place. Following financial scandals and collapses of major Corporate Houses like Maxwell, BCCI, Polly Peck, call was there to bring about immediate reforms in the regulation of the corporate structure. This was answered by various Committees starting from Cadbury eventually leading to drafting of the Combined Code 2003, which focused their research primarily upon the auditing structure, role of non-executive directors and institutional investors. The research paper primarily focuses on the development of the Corporate Governance debate in the UK in context of the shareholder and stakeholder models, and proposals forwarded by the Company Law Review Steering Group (CLRSG) in their working papers and came up with an Elightened Shareholder Value model. Further, the research paper concentrates substantially on Section 172 Companies Act 2006 which is the key provision highlighting the interests of stakeholders to be taken care of while promoting the success of the company. Section 6 of the dissertation has been devoted towards protection afforded to employees, creditors and whether recognition is given to corporate social responsibility by the current corporate governance structure. Also, key provisions highlighted by various self regulatory codes in context to non-executive directors and institutional investors have been identified. Overall the research paper is an effort to focus upon whether the UK corporate governance structure is willing to give recognition to the stakeholder approach and what relevant changes have been brought in relation to the same.