Chapter 2: Shareholder Primacy in Corporate Law – A Response to Professor Stout
Peter Watts SHAREHOLDER PRIMACY IN CORPORATE LAW There is one key proposition in Professor Stout’s chapter, which is directed to United States law, that I think is true of orthodox company law in the Commonwealth. This is that there is no legally enforceable duty on directors to maximize profits for shareholders. If, therefore, one identifies ‘shareholder primacy’ with ‘profit-maximization’, then one might agree with her that the attempt to promote shareholder primacy as a legal norm is both heterodox and unwise. However, in New Zealand anyway, it is not usual to identify shareholder primacy with profit maximization. Rather the phrase is taken more literally. It imports that it is the interests of shareholders that directors are to pursue, if necessary above those of others. Those interests might embrace things other than short-term profits. In this part of the world, and in some others, the central debate in relation to shareholder primacy is not about profit maximization but about the broader issue of whether directors are legally obliged to have regard to the interests of ‘stakeholders’ other than shareholders. Although Professor Stout’s analysis is directed to the narrow issue of profit maximization, I believe that some aspects of her argumentation do, misguidedly, give credence to the view that directors should be legally obliged to consider the interests of other stakeholders. Hence, in the very first paragraph of her chapter Professor Stout states: Of all the controversies in US corporate law, one has proven most fundamental and enduring. This is, of course,...
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