Legal Practitioners, Enlightened Shareholder Value and the Shaping of Corporate Governance

Luca Cerioni

Lecturer, Brunel University

Andrew Keay

Professor and Director of the Centre for Business Law and Practice, University of Leeds

Joan Loughrey

Senior Lecturer, Centre of Business Law and Practice, School of Law, University of Leeds

jcls Vol 8 Issue 1 (April 2008)

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Abstract

This article examines lawyers’ responses to the Companies Act 2006, section 172, which controversially introduces the concept of enlightened shareholder value into the law of the UK, together with a non-exhaustive list of factors that directors must take into account when making decisions. It argues that, in the absence of judicial precedent on the meaning of section 172, uncertainty regarding its requirements and fears of derivative litigation, advisers’ interpretations of section 172’s requirements are likely to be influential in shaping directors’ and shareholders’ responses to the law. The article considers the impact lawyers’ advice may have on the decision making of boards and the willingness of shareholders to bring derivative actions for breach of the section, and assesses the corporate governance implications of these findings. It concludes that, while shareholders’ lawyers are likely to discourage derivative litigation, lawyers’ advice may well result in more boards adopting an enlightened shareholder value approach.

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