Chapter 2: Shareholder Primacy
1. INTRODUCTION As explained in the first Chapter, there are two major theories that have been proposed for dealing with the issue of the ultimate corporate objective. This Chapter seeks to articulate and analyse one of those, namely the shareholder primacy theory.1 This theory is also known as ‘shareholder value’2 or ‘shareholder wealth maximisation’.3 It is a theory that is regarded as prevailing in Anglo-American law, and in other common law jurisdictions such as Australia, New Zealand and Canada. It has been said that the US and UK are liberal market economies that have features, such as a dispersed share ownership, more susceptibility to hostile takeovers and the existence of large institutional investors which are eager for quarterly improvements in the share price, and this tends to entrench shareholder primacy.4 The Chapter cannot possibly deal comprehensively with the shareholder primacy theory. Neither can it seek to interact with all of the literature that has been written on the subject. It is voluminous and has been written from the perspective of a number of different disciplines. The Chapter seeks to 1 Scholars clearly see the approach as the company’s purpose. For example, see L. Mitchell, ‘Groundwork of the Metaphysics of Corporate Law’ (1993) 50 Washington and Lee Law Review 1477 at 1485; L. Fairfax, ‘The Rhetoric of Corporate Law: The Impact of Stakeholder Rhetoric on Corporate Norms’ (2005) 21 Journal of Corporation Law 675 at 676; G. Crespi, ‘Maximizing the Wealth of Fictional Shareholders: Which Fiction Should Directors Embrace?’ (2007)...
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