Vol 10 (2013) - Issue 3

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

Introduction
Under English law the conventional wisdom is that companies should aim to maximise 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 realties which impact on and bear profoundly on the way the above questions should be dealt with.

I. A dawn of a new era?
Executives, investors, and the business press routinely chant the mantra that companies are required to 'maximize shareholder value.' But this idea seems to be increasingly under attack from many corners. Commentators have pointed out that companies have a wider range of goals they should pursue which go beyond just building shareholder value. Some have even pointed out that simply pursuing shareholder value can actually be destructive for the long term prospects of the company.