Chapter 5: The Enforcement of the Entity Maximisation and Sustainability Model
INTRODUCTION 1. In the last Chapter a new normative model, the entity maximisation and sustainability model (EMS) was proposed. It was explained in that Chapter that the model has two elements to it, namely the maximising of entity wealth and contemporaneously ensuring the entity’s financial sustainability. This Chapter deals with the first issue that is raised concerning the model, namely how is compliance with the model to be enforced? What if the directors fail to manage the company in line with the tenets of the model which lay down what a company’s objective should be? How can their action be contested? As Morey McDaniel has said, ‘a right without a remedy is worthless,’1 so there must be some enforcement mechanism for the model to be of any practical use.2 There must be enforceable standards that ensure that the directors discharge their stewardship of the company’s affairs and assets properly and in accord with the objective of a company. This is merely consistent with the fact that any system must have safeguards built into it.3 Providing for some process which permits the contesting of what the directors have done operates as a legitimating mechanism.4 It is critical that those who have invested in the company, and this includes shareholders, creditors, employees and others, have an avenue M. McDaniel, ‘Bondholders and Stockholders’ (1988) 13 Journal of Corporation Law 205 at 309. 2 See the comments in J. Parkinson, Corporate Power and Responsibility (Oxford, Oxford University Press, 1993) at 237. The OECD...
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