Financialization and company law: A study of the UK Company Law Review

This paper considers the role of company law in the context of financialization, with a focus on shareholder primacy. After a detailed review of the provenance of the putative shareholder primacy rationale, the study provides an analysis of relevant aspects of the Company Law Review (CLR) process in the UK. This ultimately led to the Companies Act 2006 (CA 2006) which determined that shareholder primacy would be maintained as a key principle of UK company law. The CLR had raised the central question: ‘in whose interests should companies be run?’ and put forward two alternatives: one based on shareholder primacy, and the other based on balancing the interests of a range of stakeholders. The two alternatives were described as ‘enlightened shareholder value’ and ‘pluralism’. Drawing on interviews with key participants in the CLR process, findings from this study suggest that: the breadth of expertise and opinion represented on the CLR was rather narrow; there was a presumption in favour of the status quo of shareholder primacy; there was a lack of any meaningful discussion of the alternatives and that little or no consideration was given to comparative international evidence. In fact, some key participants expressed a great deal of scepticism about the value of the process. The new form of words governing directors’ duties, which finally emerged in legislation, was thought by some to embed the concept of shareholder primacy more firmly than before – arguably reflecting the process of financialization. 2012 Elsevier Ltd. All rights reserved. * Corresponding author. Tel.: +44 0141 548 2944; fax: +44 0141 552 3547. E-mail addresses: [email protected] (D. Collison), [email protected] (S. Cross), [email protected] (J. Ferguson), [email protected] (D. Power), [email protected] (L. Stevenson). 1 This process culminated in the introduction of the Companies Act 2006 (CA 2006) which became law in November 2006. However, many of the provisions in this Act such as those relating to directors’ duties – which are the main areas of interest of this study – came into force on 1 October 2007.