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Journal of Business Law
2007
Company directors behaving poorly: disciplinary options for shareholders
Andrew Keay
Subject: Company law
Keywords: Directors' powers and duties; Powers of removal; Shareholders
*J.B.L. 656 Introduction
Generally speaking, Anglo-American corporate law embraces a principle 代写留学生论文that has been expressed inone of the following ways: shareholder primacy, shareholder wealth maximisation or shareholdervalue.1 Essentially, this means that directors of a company must act in the best interests of thecompany's shareholders, present and future, and run the company in such a way as to maximise theinterests of the shareholders ahead of any other interested parties who might have claims against the
company.2 Intrinsic to this principle is the notion that there is a separation of ownership andmanagement in the public company; that is, those who are often regarded as the owners of thecompany,3 the shareholders, do not control the company. Control is firmly in the hands of thecompany's managers, who are *J.B.L. 657 the executive directors of a company. The concept ofseparation of ownership and control “leads inexorably to the conclusion that the central goal ofCorporate Governance is to discipline managers …”.4 According to the prevailing agency theory,5directors are the agents of the shareholders and are employed to run the company's business for theshareholders who do not have the time or ability to do so, and it is the shareholders who are bestsuited to guide and discipline directors in the carrying out of their powers and duties.6 While the UKGovernment has embraced the concept of “enlightened shareholder value” as one of its primarytenets in the Companies Act 2006, legislation which is enacted but not yet in force (save for a fewprovisions), it is arguable whether this will change either the application of the law by the courts or the
modus operandi of company directors. In many ways the enlightened shareholder value conceptseems to perpetuate the central aspects of shareholder primacy, for the bottom line with this concept,as encapsulated in s.172 of the Companies Act 2006, is that the directors have a duty to act in a waythat they consider, in good faith, would be most likely to promote the success of the company for thebenefit of the members as a whole.7Given the critical role of directors in the lives of companies, this leads one to ask: if directors fail intheir role as directors, namely, they fail to do what should be done or do it in a poor and ineffectivemanner, what action can be taken by shareholders? This is potentially a serious matter ascompanies have collapsed as a result of misguided managerial conduct not remedied.8 Of course, on
some occasions there might be concern not about one or a few directors, but the whole board. In thislatter situation in particular, action has to be reasonably swift and well organised if the company's
fortunes are not to plummet, or the company is not to be taken down routes that are regarded asanathema by some or most of the shareholders.
Professors Julian Franks, Colin Mayer and Luc Renneboog identify9 five ways in which managers canbe disciplined for poor performance. These are: replacement *J.B.L. 658 following the acquisition of
a large block of shares; bidders may take action after acquiring a company; non-executive directorsmight replace directors; financial crises might lead to interventions by shareholders when new equity
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