Andrew Keay

Ascertaining the Corporate Objective: An Entity Maximisation and Sustainability Model

Public companies play crucial roles in todays world, and it has been acknowledged that ascertaining the objective of such companies is a critical issue. However, there remains great uncertainty as to what that objective should be. This article examines the two predominant theories of the corporate objective, namely the shareholder primacy and stakeholder theories. This is followed by an explanation of and the case for a new model, the entity maximisation and sustainability model. This model focuses on the company as a separate legal entity and maintains that the objective of the company is to maximise the wealth of the entity as an entity and, at the same time, to ensure that the company is sustained financially.

The enlightened shareholder value principle and corporate governance

The enlightened shareholder value principle (ESV) was formulated during the comprehensive review of UK company law by the Company Law Steering Group in the late 1990s and early 2000’s and requires directors of companies to act in the collective best interests of shareholders. The principle was taken up by the then UK Government and is now embedded in the Companies Act 2006. The emergence of the principle constitutes an important development in corporate governance, particularly in determining what directors must consider when managing the affairs of their companies.This book explains and analyzes the nature of ESV and its contribution to corporate governance whilst also examining where it fits into the existing theoretical landscape. Andrew Keay traces the development of the principle of ESV and considers it in the context of the existing principles which have historically influenced corporate governance. In doing so, the book draws on several empirical studies thereby enabling us to gauge how the ESV principle is addressed in commercial practice. Keay goes on to compare ESV with the constituency statutes that apply in the US in order to determine whether anything can be learnt from the American experience. The book also assesses the reaction of other jurisdictions to the advent of ESV and considers what impact ESV will have on financial institutions and non-financial institutions in the aftermath of the global financial crisis.

Stakeholder Theory in Corporate Law: Has It Got What It Takes?

There has been much debate for many years as to what should be the objective of the large public company. This issue is important for a number of reasons, not least of which is that the theory nominated will underpin corporate governance and dictate to a large extent the kind of corporate governance system that will exist. As far as the objective of the company is concerned, two theories have been dominant. They are the shareholder primacy and stakeholder theories. The former is said to be operative in what can be called “Anglo-American jurisdictions.” Notwithstanding the fact that it has been regularly said that the US and the UK and other Anglo-American jurisdictions embrace shareholder primacy, there are many who feel that, due to a number of factors (mentioned in the paper), some of these jurisdictions are moving towards more of a stakeholder approach to corporate governance. After setting out what stakeholder theory stands for, this paper analyses whether stakeholder theory should overtake shareholder primacy as the leading theory in Anglo-American jurisdictions. Specifically, the paper examines the arguments propounded in support of stakeholder theory and evaluates the strength of these arguments with the aim of determining if there is sufficient justification for the theory to be wholeheartedly embraced in Anglo-American jurisdictions. The two major parts of the paper involve, first, an examination of the rationale given for the theory’s existence as well as the leading arguments that are put forward for it being embraced by all companies. The second part identifies and analyses some of the concerns raised about the theory and the primary points that are directed against the theory. The paper concludes that while the stakeholder theory is attractive in a number of ways, it is lacking in many respects, and it cannot be justified as a theory of the objective of large corporations.

Company directors' responsibilities to creditors

Introduction. Fraudulent Trading. Wrongful Trading. A Duty to Consider the Interests of Creditors. Theoretical Analysis

FORMULATING A FRAMEWORK FOR DIRECTORS’ DUTIES TO CREDITORS: AN ENTITY MAXIMISATION APPROACH

IT is now well settled in English law, as well as in several other common law jurisdictions, that when their company is in some form of financial difficulty, directors cannot ignore the interests of their companies’ creditors, but rather they have a duty to their company to consider those interests. This is all well and good, but while this general principle has been stated on many occasions by various courts, the courts have been slow to define important aspects of this responsibility. There are two major issues that have not been clarified. The first is this: from what point is the duty to consider creditor interests imposed on directors? There has been no unanimous judicial pronouncement on this issue, and this has produced some uncertainty. We know with some certainty that the duty does not operate where a company is clearly solvent. At the other extreme, we have certainty in that courts have said that the duty does apply where a company is insolvent.

Shareholder Primacy in Corporate Law: Can it Survive? Should it Survive?

The dominant theory in Anglo-American jurisdictions, as far as determining the objective of large public corporations, has been, certainly since the 1970s, the shareholder primacy theory. Yet there have been in recent years a number of challenges to the dominance of this theory in Anglo-American jurisdictions. Given this, the article asks whether shareholder primacy is able retain its position as the dominating theory in relation to corporations in such jurisdictions? A second question that is considered is: should the theory survive?

Shareholder Value and UK Companies: A Positivist Inquiry

It has generally been maintained that UK companies embrace a shareholder value approach. But some commentators have challenged that view. This article documents an attempt to ascertain the actual position in UK companies by an analysis of the position taken concerning corporate objective by 50 of the largest companies in the UK. The research consists of an examination of the public documents of these companies, namely those that could be accessed from the companies’ websites, and the primary document considered was the company’s most recent Annual Report. The study found that companies could be divided into three groups with one group consisting of 36% of the companies considered, stating that they have shareholder value as their ultimate goal. But, critically, it also found that most of these companies indicated that non-shareholding stakeholders were important to them.

Risk, shareholder pressure and short-termism in financial institutions: does enlightened shareholder value offer a panacea?

Several reasons have been given for the advent of the global financial crisis in 2007. This paper takes one of the reasons, namely the fact that over-leverage and excessive risks were embraced by many financial institutions, and enquires as to why these institutions engaged in such practice. The paper suggests that one of the primary catalysts for this action was a focus on short-termism. The study focuses on two particular elements that led to short-termism, namely an emphasis on quarterly earnings and pressure from shareholders. Consideration is given to the fact that the UK government has endeavoured to encourage less of a focus on short-termism and a greater focus on long-term approach. The paper discusses the government?s attempt to do this via the principle of ?enlightened shareholder value?. The paper then examines whether developments in UK company law and the government?s implementation of enlightened shareholder value in the Companies Act 2006 is likely to provide a sufficient measure that will go some way to ensuring that boards will not engage in excessive risk-taking in the future and will refrain from embracing short-termism.

Getting to Grips with the Shareholder Value Theory in Corporate Law

When it comes to determining what is the objective of a large public company there are two dominant theories that are employed around the world. They are the shareholder value theory (also known as ‘shareholder primacy’ or ‘shareholder wealth maximization’) on the one hand, and the stakeholder theory on the other. Generally speaking, Anglo-American corporate law embraces the former, and in countries such as the UK, US, Canada, Australia and Ireland public companies apply shareholder value as their guiding light. Much has been written about the shareholder value approach, and the reasons why it should be implemented. But what has rarely been considered is: what does it actually mean and what does it involve? How does one determine whether a company has been managed in such a way as to achieve shareholder value? The main aim of this paper is to address those questions. The paper, after providing some background to the theory, examines what the theory actually stands for, and this involves an identification of the primary reasons given for the employment of the theory. Next, the paper seeks to ascertain what is meant by shareholder value and what it means to operate a company pursuant to the theory. One of the major selling points of shareholder value is that it is certain and clear. The paper finds that the meaning of shareholder value is in fact not clear and certain. Indeed, it is rather disturbing that there has been so little consideration of how such an influential theory in corporate life is applied in commercial terms. Equally worrying is the fact that there is a lack of consensus among its advocates as to what it involves.

Fraudulent Trading: The Intent to Defraud Element:

The Insolvency Act 1986, s. 213 permits liquidators of companies in winding up to bring proceedings to obtain orders against those who have committed fraudulent trading. The most contentious element that has to be proved in a claim for fraudulent trading is that the business of the company was carried on with intent to defraud creditors or for any other fraudulent purpose. The phrase ‘intent to defraud’ has never been defined statutorily and there has been inconsistency concerning the test which should be applied and how the phrase should be interpreted. The article traces the manner in which the courts have interpreted the expression ‘intent to defraud,’ and in doing so it ascertains what the present test is for establishing intent to defraud.