Current accounting and reporting fail to provide adequate transparency of qualitative and forward-looking information which is of vital importance in assessing performance and potential for shareholders, investors, creditors and others. This is particularly so in the modern environment of technical change, and with the growing importance of “soft,” or intangible assets, brands, know-how and business relationships. The full annual report must be effective in covering these, both as a stewardship report and as a medium of communication to wider markets and the public … we believe the time has come to require larger companies to provide an operating and financial review, which will cover the qualitative, or “soft,” or intangible, and forward-looking information which the modern market and modern business decision-making require, converting the practice of the best-run companies into a requirement for all. These issues were extensively considered in the United Kingdom for several years in the deliberations of the Modern Company Law Review. Two approaches were considered: – a pluralist approach under which directors’ duties would be reformulated to permit directors to further the interests of other stakeholders even if they were to the detriment of shareholders; – an enlightened shareholder-value approach allowing directors greater flexibility to take into account longer-term considerations and interests of various stakeholders in advancing shareholder value. 412
In considering these approaches, the essential questions of what is the corporation, and what interests it should represent are exposed to light, as Davies eloquently argues (2005, 4): The crucial question is what the statutory statement says about the interests which the directors should promote when exercising their discretionary powers. The common law mantra that the duties of directors are owed to the company has long obscured the answer to this question. Although that is a statement of the utmost importance when it comes to the enforcement of duties and their associated remedies, it tells one nothing about the answer to our question, whose interests should the directors promote? This is because the company, as an artificial person, can have no interests separate from the interests of those who are associated with it, whether as shareholders, creditors, employers, suppliers, customers or in some other way. So, the crucial question is, when we refer to the company, to the interests of which of those sets of natural persons are we referring? As a member of the Corporate Law Review Steering Group, Davies goes on to defend the enlightened shareholder-value view suggesting that the pluralist approach produces a formula which is unenforceable, and paradoxically gives management more freedom of action than they previously enjoyed. An Australian legal expert, Redmond, endorses this critique of widening the scope of directors’ duties too greatly (Redmond 2005, 27): The pluralist or multifiduciary model rests on a social, not a property, view of the corporation. It identifies the corporate
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