- Research Handbooks in Financial Law series
Edited by Barry Rider
Chapter 13: Corporate governance and responsibility
The financial turmoil that began in 2007 and the ensuing financial crisis prompted calls for remedial measures which, in turn, led to a spate of regulatory reforms on both sides of the Atlantic. The world of corporate governance has not escaped political and media scrutiny, and resulting consultation documents and interim and final reports with various recommendations for change have been countless. Nevertheless, one fundamental issue that has not been addressed in much depth in the ongoing debate is shareholder primacy, which appears to have dominated the thinking of both business leaders and academics for the last few decades. It has been pointed out that ‘Throughout the 1980s and 1990s in the U.S. and U.K., the logic of shareholder value maximization became the guiding principle, informing the top management strategic decision making in listed firms as well as (and because of) the way institutional shareholders evaluated their performance.’ Indeed, shareholder primacy, shareholder value maximization and profit maximization have been used synonymously and interchangeably in many discussions. And those pushing this cause often refer to the article by Professor Milton Friedman, a Nobel laureate economist, published in 1970, in which he famously states, ‘there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits’.
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