Enlightened Shareholder Value Research Articles

Enlightened Shareholder Value Principle in the UK Companies Act 2006: What Lesson for a Legal Approach to CSR in Nigerian?

Enlightened Shareholder Value Principle in the UK Companies Act 2006: What Lesson for a Legal Approach to CSR in Nigerian?

The Need for Amendment of Section 172 of the Companies Act 2006 Due to Game Changer ESG: Double Enlightened Shareholder Value Approach for Sustainable and Purposeful Companies

The Need for Amendment of Section 172 of the Companies Act 2006 Due to Game Changer ESG: Double Enlightened Shareholder Value Approach for Sustainable and Purposeful Companies

Article 25 of the Proposal for a Directive on Corporate Sustainability Due Diligence: Enlightened Shareholder Value or Pluralist Approach?

Article 25 of the Proposal for a Directive on Corporate Sustainability Due Diligence: Enlightened Shareholder Value or Pluralist Approach?

Does Enlightened Shareholder Value Add Value?

Does Enlightened Shareholder Value Add Value?

What effect does the enlightened shareholder value principle in the Companies Act 2006 have on the corporate objective of UK companies?

The Organisation for Economic Co-operation and Development defines corporate governance as the system by which companies are directed and controlled, and through which a company’s objectives are set. Corporate governance theories are closely linked to those of corporate objectives, as the interests that directors have a duty to promote must be determined in order for one to consider issues of corporate governance. This relationship is demonstrated in the UK Corporate Governance Code’s postulation that a company should be managed efficiently to return long-term profits to the shareholders. Corporate objective debates are commonly divided between the shareholder value (‘SV’) theory and the stakeholder theory. This dichotomy remains evident in section 172(1) of the Companies Act (‘CA’) 2006’s stipulation that directors have a duty to act in a way which they consider, in good faith, to promote the success of the company for the benefit of its members, or its shareholders, as a whole. This is similar to the fiduciary duty, such as the duty to act bona fide in the best interests of the company, owed at common law antecedent to the CA 2006. It continues to require directors, when fulfilling the aforementioned duty, to have regards to the non-exhaustive list of long-term consequences alongside employee interests, fostering business relationships, impact on the community and environment, maintaining an upright reputation, and acting fairly between the company’s members. This paper begins by outlining modern discussions on the shareholder-stakeholder paradigm leading up to the codification of directors’ duties in the CA 2006, and the underlying political and legal pressures that led to the Company Law Review Steering Group (‘CLRSG’) recommendation to develop the longstanding principle of SV into enlightened shareholder value (‘ESV’) in section 172(1) of the CA 2006. To assess whether section 172(1) of the CA 2006 has modernised the SV model established in the pre-2006 case law, this paper explores the impact of the legislation on subsequent corporate governance practices in the country, specifically in regard to the reporting requirements found in later statutory instruments. Finally, it is concluded that despite legislators omitting to profoundly expand on the case law preceding the ESV provisions, rebranding SV with an ‘enlightened’ streak creates a margin for more fundamental changes, both legal and normative in nature, in the future of the doctrine, should this be required.

IESE ECGI CONFERENCE ON CORPORATE PURPOSE: Can Purpose Deliver Better Corporate Governance?

IESE ECGI CONFERENCE ON CORPORATE PURPOSE: Can Purpose Deliver Better Corporate Governance?

Towards Effective Models and Enforcement of Corporate Social Responsibility in Ethiopia

Corporate Social Responsibility (CSR) is a concept whereby companies regard stakeholder interests in reaching corporate decisions on voluntary basis. Even though CSR is not alien to Ethiopians who are known for their philanthropic and charitable activities, there is no law that expressly requires CSR standards and thresholds. Provisions of the 1960 Commercial Code and other domestic laws show that Ethiopian companies have the option to comply with CSR in their core business strategy and decision making. To that end, companies, have either individually or at sector level, developed model codes of conduct and guidelines including CSR projects and initiatives. However, these are inadequate and they do not guarantee effective CSR behavior among companies. There is thus the need to adequately integrate CSR practices into their core business decisions, and meet the interests and legitimate expectations of their employees, creditors, customers, local communities, and the environment. I argue that the alternatives to ensure effective CSR regulation in Ethiopia are adopting the Enlightened Shareholder Value (ESV) which recognizes a CSR framework tighter than the existing shareholder primacy model, or the Responsible Stakeholder Model (RSM) which adopts more subtle and lighter principles than stakeholder model to demand CSR compliance.

The Wates Corporate Governance Principles for Large Private Companies: A Weak Compromise at the Expense of Employees?

The aim of this dissertation is to make a deep investigation into the Wates Corporate Governance Principles for Large Private Companies and the new reporting requirements to assess if they meet, from an employees’ perspective, the ambition of the Government and Parliament committee to increase trust in British business, to “strengthen the voice of employees…at board level”2 and to avoid new corporate scandals such as the BHS collapse. The regime previous to the corporate governance reform (section 2.1.) and the current legal system (section 2.2.) will be reviewed on the basis of a two-limb test. The first limb consists of an evaluation of the emphasis given to employee interests in the board’s decision-making process and the measures foreseen to ensure such a level of consideration in practice. The second limb of the test is based on the lesson learnt from the BHS collapse and assesses the effectiveness of ex-ante mechanisms that prevent corporate failures from happening. The result of this analysis highlights serious shortcomings in the company law regime and shows that the Wates Principles combined with the new reporting requirement should be taken with a pinch of salt. The remedy proposed by this dissertation takes the form of the “enhanced independent director” designated by a special committee elected by and amongst the workforce. This newly created position is part of a wider internal system of newly created committees and will be explained in more detail in section 2.3.1.2. The enhanced independent director takes a key role to ensure the operationalisation of the enlightened shareholder value at board level (limb one) and to prevent new corporate failures by monitoring related party transactions (limb two). The overall assessment is based on the premise of a wholly owned company without any minority shareholder, which are very common amongst private UK companies (e.g. familyowned or private equity portfolio companies).

Shareholderism Versus Stakeholderism – a Misconceived Contradiction. A Comment on 'The Illusory Promise of Stakeholder Governance' by Lucian Bebchuk and Roberto Tallarita

This paper critiques an assessment by Bebchuk and Tallarita (BT) of the relative merits of shareholder and stakeholder governance. BT’s paper argues that stakeholder governance is either nothing more than enlightened shareholder value, or it imposes unmanageable tradeoffs on directors of companies. But trade-offs are ubiquitous not just in stakeholder but also in shareholder governance, and the resulting judgments that are required of directors should not be viewed as an anathema but a fundamental function of a board, without which untenable outcomes result. The complexity that BT see in implementing a stakeholder system reflects a failure to recognize the way in which business routinely makes judgments based on its purposes and values. Purpose and values hold management to account to a degree that enlightened long-term shareholder value cannot. In seeking to demonstrate that directors are not motivated or able to promote anything other than shareholder value in a shareholder-oriented system, BT merely describe the system that they see rather than analyse what it could or should be. The paper therefore fails to provide a benchmark against which it is possible to evaluate either the comparative merits of shareholder and stakeholder systems, or alternative proposals for reform.

An Alternative View of Corporate Purpose: Colin Mayer on Prosperity

In this paper I review Prosperity, which was published in 2018 by Colin Mayer, Professor and former Dean at the Said Business School at the University of Oxford. In Prosperity we find a passionate defence of the corporation as an institution. Mayer’s criticism mainly refers to how corporations have misbehaved and failed us in our era. As to possible remedies, M. rejects regulation as an appropriate response, save for financial firms. He would mainly rely on private law and corporate governance as a means to ground commitment to corporate purpose. He also suggests specifying corporate purpose in the articles of association of companies, a solution that has been recently adopted by the French legislator allowing them to define their raison d’etre in the statute. I argue, however, that there are limits to this remedy, for the wording of corporate purpose will often be generic; managers will always find ways to circumvent it; shareholders will find it difficult to monitor compliance; enforcement of similar undertakings in cases of breach will be too difficult. I also argue that regulation should have a greater say in disciplining corporations than Mayer suggests. We cannot rely on corporate governance and shareholders as the main instruments to preserve the integrity of corporations. A balanced view of corporate purpose requires a multidisciplinary approach to the corporation. No enlightened CEO would manage a large corporation by looking narrowly at the financial capital or by targeting exclusively shareholder wealth creation. Rather, she will consider all types of capital and try to optimize the management of each of them if she wants the firm to grow sustainably. Indeed, stakeholders are taken care of even in countries that do not follow the German model of corporate governance, but a shareholder primacy model. Stakeholders’ protection in these countries mainly depends on either contracts or regulation (such as environmental and labour laws), but also on corporate governance to the extent that stakeholders’ interests are considered at board and management levels. In particular, the theory of enlightened shareholder value suggests that shareholder wealth should be maximized in the medium-long term, which requires the interests of stakeholders to be met as a condition for maximizing the value of the firm. In conclusion, I argue that corporate purpose should be seen from the intermediate perspective of the enlightened shareholder value theory, which represents a sort of compromise between the traditional shareholder primacy theory and the stakeholder approach to the corporation. Moreover, corporate purpose should be specified and implemented in practice mainly by the board of directors and the top managers, who should reconcile the interests of the shareholders with those of other stakeholders and the community in general. There is no need to specify the purpose of the corporation in its charter, even without considering the difficulties of such a definition and of its enforcement in practice. The criticisms developed in this paper, however, do not detract from the obvious merits of Prosperity which are also highlighted. This excellent book will stimulate fresh thinking and research on corporate governance and the future of the enterprise in modern capitalism. In addition, it will influence the work of legislators and the action of those constituencies that want to defend the corporation from political attacks and heavy regulatory interference, while promoting its integrity and prosperity.

Corporate Purpose and Sustainability

An increasing number of firms make reference to the pursuit of environmental and social goals in the definition of their purpose. This raises important issues with respect to the way in which the trade-offs between profit maximization and social value are solved. As I show in this chapter, there are different perspectives that can be adopted to this end depending on the field of scholarship selected: economics, finance, management and law. Each perspective offers different nuances as to the way in which corporate purpose is defined and the conflict between the pursuit of profit and social value is dealt with. In section II of this chapter, I argue that a broader concept of corporate purpose has gradually emerged over the years in economics, finance and management studies, as a result of various approaches to corporations such as corporate social responsibility (CSR) and stakeholder theory, which have been gradually integrated into the corporate governance framework. Environmental and social sustainability have come to characterize most of the instances of CSR and some core aspects of stakeholder governance, without discarding the pursuit of corporate profits as a long-term goal of the corporation. At the start of this century, sustainability concerns have entered into the area of finance studies through the theory of “enlightened shareholder value” (ESV) and its homologues like “shared value”. In section III I argue, from a comparative law perspective, that corporate purpose has been variously defined in different jurisdictions, while European laws often consider the company’s interest rather than corporate purpose. However, corporate purpose is generally identified in practice with the pursuit of corporate profits, albeit with variations concerning the relevance of given stakeholders and social values in corporate governance. In general, legal definitions of corporate purpose are flexible and allow for different types of solution of the conflict between economic value and social value at firm level and within a given system. In section IV I critically analyse recent economics and management studies which argue that corporate purpose should be modified to reflect the prevalence of social value over shareholder value, and that the latter should be pursued by managers only derivatively, as a result of pro-stakeholders actions directed to increase the “total pie”. I object to this recent trend from a law and finance perspective and show my preference for keeping the relevant discussion within the confines of ESV theory. However, I admit that corporate purpose should be larger than profit from a behavioural perspective if we want to motivate people to perform outstandingly and sustainably in organizations. In section V, I emphasize the mounting role of regulatory and ethical constraints to business conduct deriving from sustainability concerns. These constraints go beyond the mere calculus required by ESV, which asks management to pursue stakeholder interests only to the extent that this increases the long-term value of the firm. Indeed, ethical considerations as reflected by international standards and consolidated best practices should apply to the running of businesses without necessarily requiring a prior analysis of their precise impact on financial performance.

Enlightened Shareholder Value, Stakeholderism, and the Quest for Managerial Accountability

Enlightened Shareholder Value, Stakeholderism, and the Quest for Managerial Accountability

Having regard for stakeholders in practising enlightened shareholder value

ABSTRACTSection 172(1) of the Companies Act 2006 introduced the principle of enlightened shareholder value (ESV) to UK law. The provision imposes a duty on directors to act in good faith, in a manner that they consider will promote the success of the company for the benefit of shareholders. The subsection also requires directors to have regard to certain factors when doing this. This is the enlightened aspect of ESV, as these factors encompass interests of different stakeholders, such as employees and customers. Uncertainty prevails over several elements of s 172(1), and this paper addresses this uncertainty over the directors’ obligation to have regard to these factors. It examines the factors in the provision and what it means for directors to have regard to them. It also explores what directors are to do when their actions will lead to a conflict between different factors.

Does the Concept of Enlightened Shareholder Value Succeed in Bridging the Gap between the Shareholders and Stakeholders Value Theories?

Purpose: The purpose of this article is to explore the main theories as to the corporate governance subject, and focus first on Shareholders and Stakeholders Value theories in order to identify their shortcomings. Next, the advantages and disadvantages of Enlightened Shareholder Value; including future perspectives on Enlightened Shareholder Value in light of the UK company Act 2006.Methodology /approach: This article describes and compares the main theories with regard to the corporate governance subject. The following materials were referenced as part of this article: books, journal articles, cases, reports, legislations.Findings: Based on the outcomes of the article there are advantages and disadvantages to Shareholders and Stakeholders Value theories. The former is considered a very narrow vision because its main aim is to gain profits for shareholders, it ignores stakeholders, there is a possible risk since managers and directors may abuse their delegations, and it costs more to monitor directors. Similarly, this article has been found that there are shortcomings to the Stakeholders Value theory; for example, there is no clear hierarchy of stakeholders’ interests, there is no one goal to achieve; it seems to demand less accountability from directors. Moreover, this article highlighted that the Enlightened Shareholder theory seems a better theory at present. Apparently, the success of this theory will depend on many factors: first, how the directors will apply the discretionary power with regard to section 172 (1) of CA 2006. Secondly, the interpretation of the courts about the duty of directors. Thirdly, the role of scholars improving this theory. Fourthly, how civil society will observe the application of this theory. Finally, recommended that further study should be done according to the recent practice.Originality/value: This article contributes to increase the understanding of the theories of corporate governance and discover the best one for the time being.

A Scheme for Accepting the Social Values in Corporate Law - Focusing on the Concept of Enlightened Shareholder Value

A Scheme for Accepting the Social Values in Corporate Law - Focusing on the Concept of Enlightened Shareholder Value

The protection of stakeholders: The South African social and ethics committee and the United Kingdom's enlightened shareholder value approach: Part 1

The protection of stakeholders: The South African social and ethics committee and the United Kingdom's enlightened shareholder value approach: Part 1

The protection of stakeholders: the South African social and ethics committee and the United Kingdom's enlightened shareholder value approach: Part 2

The protection of stakeholders: the South African social and ethics committee and the United Kingdom's enlightened shareholder value approach: Part 2

Corporate Social Responsibility and Philanthropy: The Missing Link

The notion of “corporate social responsibility” has been developed by academic literature for decades. National governments, international organizations and researchers gave a number of definitions of “socially responsible” corporations. In the meantime, the process of economic globalization brought forth corporations as autonomous legal entities and the debate became even more complex due to the concept of “corporate citizenship”. Despite a multifaceted theoretical background, there was a common idea: corporations have (or should have) a role in the development of society. Scholars thus began to question the idea that managers should only consider shareholders’ interest when managing the company. The Berle-Dodd controversy rose once again and the paradigm of shareholder value was put under scrutiny. A number of alternative models were developed (the enlightened shareholder value or long-term production theory, the team production theory), and they all tackled a common problem: how much should managers take into consideration other stakeholders’ interests? Among these stakeholders there are those entitled to social rights, ecological rights and human rights: as such, the debate on CSR strongly intertwined itself with that on stakeholders’ interests. In its first part, the paper will examine how the aforementioned debate impacted on national and international legislation, as well as corporate codes of ethics (non-binding list of rules that corporations declare to adhere to), in order to assert the current normative framework of CSR standards. In the context of the actual immigration crisis, fulfilling refugees’ rights is a most urgent social issue, involving all of us on a global level. Since government are struggling with both practical and political issues, many have advocated for an intervention by private companies, although it is unclear how this should happen. Since, in principle, humanitarian assistance by corporations is considered a philanthropic activity, in the second part his paper will try to assert if philanthropic activities are considered part of a “socially responsible” conduct by: 1) the academic debate on CSR; 2) national and international legislations; 3) multinational corporations (examining both their activities and codes of ethics). A brief case study on how multinational corporations responded to the refugee crisis will also be conducted, in order to better understand what place philanthropic activities have in the CSR debate.The paper concludes that, while certain definitions of CSR encompass philanthropic activities (from both an academic and a legislative point of view), corporations have implemented a concept of CSR that only consider the interests of parties related to the company (directly or indirectly). In light of the rising necessity for global humanitarian assistance, the paper ultimately suggests that it’s time for the debate to receive a broader definition of socially responsible conducts, in order to develop a new concept of corporate social responsibility that is grounded on what corporations are actually capable of doing.

The Stakeholder Approach Towards Directorss Duties Under Indian Company Law: A Comparative Analysis

Recognizing that common law does not cast any general duty upon directors towards non-shareholder constituencies, legislatures have sought to formulate a tolerable solution to what they perceive as a gap in existing common law. The British Parliament engaged in one such legislative intervention by adopting the “enlightened shareholder value” (“ESV”) model through section 172 of the UK Companies Act 2006 (the “2006 Act”). This requires directors to have regard to non-shareholder interests as a means of enhancing shareholder value over the long term. Another approach was taken by the Indian Parliament through section 166(2) of the Companies Act, 2013 (the “2013 Act”), which appears at first glance to cast a duty on directors to treat non-shareholder interests as an end in itself. In other words, section 166(2) follows the pluralist approach by placing all interests (whether of shareholders or other stakeholders) on par without creating any hierarchy and as being valid in their own right. In this article, we examine the nature and content of the duty cast under section 166(2) of the 2013 Act in India. In doing so, we also draw on the experiences from similar debates in other jurisdictions, principally the United Kingdom (UK). Our principal thesis is that while section 166(2) of the 2013 Act at a superficial level extensively encompasses the interests of non-shareholder constituencies in the context of directors’ duties and textually adheres to the pluralist approach, a detailed analysis based on an interpretation of the section and the possible difficulties that may arise in its implementation substantially restrict the rights of stakeholders in Indian companies. This makes the Indian situation not altogether different from the ESV model followed in the UK.

Integrated reporting with CSR practices

Purpose– The purpose of this paper is to illustrate how standards and guidelines for corporate social responsibility (CSR) can help a company in its integrated reporting (IR). The authors investigate the motivations of diverse stakeholders (including shareholders) in fostering the adoption of standards and guidelines for CSR after IR became mandatory in Denmark.Design/methodology/approach– The authors conduct a case study at the Danish carpet manufacturer EGE. The authors interpret the case from the perspective of pragmatic constructivism, which focuses on the integration of four dimensions: facts, possibilities, values, and communication.Findings– The authors find that the family-owned EGE follows a strategy of “enlightened shareholder value,” in which CSR is an essential value driver. This strategy fostered IR with guidelines and standards for CSR. The CSR practices appeared to be helpful for integrating measureable plans to the strategy and for controlling CSR implementation. However, the long and technical CSR reports did not effectively communicate EGE’s values and possibilities. The authors outline how EGE overcame these barriers.Originality/value– The authors suggest that IR implementation depends on the context, and the authors explain why the case company has opted to issue two separate reports for their IR. In addition, the authors suggest that standardized approaches to CSR may be suitable for internal planning and control purposes; however, companies must go beyond these measurements to achieve IR.