Corporate Governance after the Financial Crisis
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Corporate Governance after the Financial Crisis

Edited by P. M. Vasudev and Susan Watson

The financial crisis of 2008–09 raises questions about the assumptions that underpin corporate governance. Shareholder value and private ordering may not in fact be the best means of promoting efficiency and corporate responsibility and the mechanisms used to ensure management accountability may not be effective. In this fascinating study, experts from around the world draw on the experience of the financial crisis to explore topical issues ranging from shareholder primacy and the corporate objective to the stakeholder principle, business ethics, and globalization of corporate governance principles. The chapters are provocative, acknowledging that our understanding of fundamental questions of corporate governance is still developing and demonstrating that the corporate governance debate is far from over.
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Chapter 2: Shareholder Primacy in Corporate Law – A Response to Professor Stout

Peter Watts


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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