Enlightened Shareholder Value Essay Example | Topics and Well Written Essays - 2250 words

Enlightened Shareholder Value - Essay Example The concept of shareholder value holds that company directors must tailor their policies to be in line with the interests of the shareholders of the company1. Directors are therefore expected to steer the operations of the company with the maximization of the shareholder’s interests as the main priority. The United Kingdom established the Company Law Review Steering Group (CLRSG) in late 1990s and mandated it to come up with a detailed review of English company law. At the end of its exercise, the CLRSG noted that the country’s legal system, like other Western jurisdictions, prefers shareholder value. The CLRSG indicated that the current legal system reflects the reality that business organizations are run in such a way that the shareholders often benefit. That is, the legal system confers upon shareholders absolute powers in the management of the local companies, such that the mandate of the directors is basically to exercise delegated power. Additionally, the CLRSG st ated that the crucial goal of business organizations is to create maximum gains for the investors in the short term as opposed to long-term goals2. This paper examines the argument that the enlightened shareholder value principle is a sophisticated restatement rather than a refutation of the principle of shareholder primacy. ... This is especially true even after the latest repeals to the body of law as envisaged in the Companies Act 2006. It is arguable that, unlike the largely fair structures of company law, English case law has consistently reaffirmed the primacy of shareholders. The courts have traditionally held that any public business organization should be managed to the advantage of the membership or shareholders3. However, the CLRSG has recommended a change of tack. To this end, the reviewing body supported the implementation of the principle of enlightened shareholder value (ESV)4. Section 172(1) of the Companies Act 2006 mainly captures the provision for the ESV. The provision reaffirms the management of every company should be done with respect to the interests of the shareholders. The section basically upholds the principle of shareholder value, but limits the formerly absolute benefits of the group by introducing the rule and the need for due respect for the interests of other stakeholders5. T his is arguably a proposal for a new doctrine in the English law, in the sense that section 172(1) conditionally supports the primacy of the interests of the shareholder. The requirement, which could be interpreted as the enlightened aspect of the shareholder value, underscores the doctrine of due attention to the value of non-share-holders as well. The latest law has brought about far-reaching legal implications in the understanding of the provision. Responses to the new clause among legal opinions may be divided into two categories: supporters and detractors of the enlightened shareholder value rule. It can be argued that section 172(1) is actually a modest but well thought-out principle that will balance the