Shareholder Value after the Financial Crisis: A Dawn of a New Era?

Abstract

Under English law the conventional wisdom is that companies should aim to maximize shareholder value. The duty formulated in section 172 of the Companies Act 2006 for directors to promote the success of the company enshrines in statute a reformed and broader concept of shareholder value, labelled as 'enlightened shareholder value'. The meaning of the term 'company' in this context was construed, again and again, by the courts as referring to present and future members,subject to the requirement to take into consideration the interests of other constituencies.

But has the recent financial crisis proved that this conception of shareholder value failed? Does it require refinement or re-tuning? Should we look at new ways of thinking about the ultimate purpose of the corporation? This brief commentary intends to highlight some hidden truths and new realities which impact on and bear profoundly on the way the above questions should be dealt with.

These questions were recently discussed at a panel at Cass Business School on 24 April 2013, in which the author was part of. Other speakers were: Professor Colin Mayer, Past Dean of the Said Business School at Oxford University, Dr Daniel Summerfield, Head of Responsible Investments at USST, Professor Paddy Ireland, Kent Law School and Professor Igor Filotochev, Associate Dean, Cass Business School. The views expressed in this commentary were presented at the debate and are solely those of the author.

Keywords: shareholder, shareholder value, enlightened shareholder value, financial crisis