Dr Daniel Attenborough

1
How Directors Should Act When Owing Duties to the
Companies Shareholders Why We Need to Stop
Applying Greenhalgh

• Dr Daniel Attenborough

2
Objectives

• UK assumed to adhere to shareholder value
• Leading authority is Greenhalgh v Arderne Cinemas
  Ltd. 1951
• Weak precedent on corporate objective
• A need to resist mistake of applying the
  shareholder value principle under the s 172
  Companies Act 2006

3
Shareholder Value

• requires a company to be run in such a way as
  to maximise the interests of shareholders ahead
  of any other interested party who might have
  claims against the company.
• But normatively undesirable in 2009..?

4
Greenhalgh v Arderne Cinemas Ltd. 1951

• Evershed, M.R.
• It is now plain that the phrase, the company
  as a whole, does not (at any rate in such a case
  as the present) mean the company as a commercial
  entity, distinct from the shareholders it
  means the shareholders as a general body.

5
Greenhalgh as weak precedent

• An inter-shareholder dispute, not a case
  concerning directors duties
• Doubtful intention of Evershed M.R. to set out a
  broad definition on the corporate objective
• Surprisingly difficult to find any evidence of
  shareholder value in English law

6
170 Scope and nature of general duties

• (3) The general duties are based on certain
  common law rules and equitable principles as they
  apply in relation to directors and have effect in
  place of those rules and principles as regards
  the duties owed to a company by a director.
• (4) The general duties shall be interpreted and
  applied in the same way as common law rules or
  equitable principles, and regard shall be had to
  the corresponding common law rules and equitable
  principles in interpreting and applying the
  general duties.
• Greenhalgh still relevant...

7
172 Duty to promote the success of the company

• A director of a company must act in a way that
  he considers, in good faith, would be most likely
  to promote the success of the company for the
  benefit of its members as a whole, and in doing
  so have regard (amongst other matters) to--
• (a) The likely consequences of any decision in
  the long term
• (b) the interests of the company's employees
• (c) the need to foster the company's business
  relationships with suppliers, customers and
  others
• (d) the impact of the company's operations on
  the community and the environment
• (e) the desirability of the company maintaining
  a reputation for high standards of business
  conduct, and
• (f) the need to act fairly between the members
  of the company.

8
A call to abandon Greenhalgh doctrine

• Companies are intricate institutions too complex
  to be explained by shareholder value
• s 172 at least permits wider thinking on the
  corporate objective
• A duty on legal practitioners, the court, and
  legal scholars to propel normative shift

9
Concluding Remarks

• A lack of doctrinal and normative justification
  for Greenhalgh (and shareholder value) as
  precedent
• Despite this, s 172 CA2006 has enshrined this
  standard in UK company law
• Call for abandonment of this assumption and a
  normative move towards a more stakeholder-friendly
  entity