Scope Of Company Law
It is under this heading that the content of the duty of directors to act in the interests of the company is explored. The consultation document recognises that the extent to which the present-day duty of directors in this respect embraces longer-term considerations is widely misunderstood and that, in practice, this lack of clarity may tend to lead to an undue focus on short-term issues. The consultation document supports the view that the current duty of directors is to maximise value in the longer term but takes mutual trust and co-operation between shareholders and other 'constituencies', such as employees, suppliers and customers, as being the basis on which such value maximisation can best be achieved.
Accordingly, to discharge their duties properly, directors should take into account all of the considerations which contribute to the success of their enterpriseThe duty imposed by the Companies Act 1985, s 309 to consider the interests of employees is one aspect of this duty to consider. This inclusive approach is described in the consulta tion document as the 'Enlightened Shareholder Value' approach. According to the consultation document, under this approach there is no need to reform the fundamentals of directors' duties, although it accepts that there is a case for the duty to consider all relevant interests to be made clearer either by primary legislation or by some form of non-legally binding but nevertheless authoritative public statement.
The Enlightened Shareholder Value approach is contrasted to the 'Pluralist' approach. The Pluralist approach is broadly equivalent to what has been described in this book as the stakeholder model of company law, in which shareholder interests are downgraded from their present overriding position and become only one of the considerations that the management of a company should consider, alongside those of others who make commitments to it such as its employees. The consultation document recognises that adoption of the Pluralist approach would involve a need to balance potentially conflicting interests, would require reform of the law of directors' duties and might require changes in shareholder control over the company through their ability to determine the composition of the board. The discussion in 4 of this book suggests that fundamental aspects of company law would indeed need to be reviewed if a stakeholder or Pluralist approach were to be adopted.
Although it is emphasised that much work remains to be done in this area before any final recommendation can properly be made, the indications in the consultation document are that the Steering Group does not favour the Pluralist approach, Early responses in the media to the publication of the consultation document tended to favour the view that discussion of the Pluralist approach was probably included precisely in order for it to be shot down.
The consultation document seems, however, to be more positive about the possibility of achieving the objectives of the Pluralist approach within the framework of Enhanced Shareholder Value through the mechanism of enhanced reporting obligations. These could, for example, require greater disclosure of relationships and dependencies and their value to the business, and mandatory reports on such matters as relations with employees, philanthropic activity and environmental performance.
The consultation document also expresses little enthusiasm for mandatory reform of board structures to achieve wider representation of employee or other interests, but it acknowledges that that there may be a case for enabling companies to adopt alternative structures if there is a strong demand for an optional regime to this effect.Although stated at a high level of generality, if developed this suggestion could result in a change to the law relating to the duties of directors who are appointed as nominees of a particular group to allow them more easily to discharge their representative function. Whether directors should be empowered or required to subordinate shareholder interests to wider ethical considerations or to engage in charitable activity at shareholder expense are other issues that are raised for consideration.
.
