Companies Act – Maximising Shareholder Value – Time for Change

Something that has been suggested by Finance Directors attending our Environmental Accounting seminars over the years is that the Companies Acts need to be brought up to date in what they require of company directors. The suggestion has been made several times that the requirement to maximise shareholder value, which may have been appropriate in the nineteenth century – is now inappropriate as it stands.  Points such as these have been made:

  • The Companies Acts do not recognise that there are other stakeholders than shareholders.
  • They do not recognise that other living beings than human beings – are stakeholders in enterprises
  • They do not recognise that ecological systems may also be seen as stakeholders in enterprises
  • They do not recognise that society is the context of enterprise – and not the other way
  • They do not recognise that ecology is the context of society & enterprises
  • They do not recognise that there is a human and societal interest in maintaining stable, clean ecological systems services
  • There is even a strong business interest in such ecological systems services!
  • There is a societal interest that the values that society would like to live by are supported by business’ own values. That these are triggered and enabled by Company law in relation to the duties of directors
  • The current central requirement to maximise shareholder return – and that alone – is tantamount to enshrining greed as the greatest, most central moral good. This tends to ‘ghettoise’ business in a space which is quite different from that of the rest of society, where other human higher values are valued, inculcated into each generation and are in fact demanded in daily social life.


Some Finance Directors have said independently and spontaneously that they feel trapped and disabled by the bald requirement to maximise share-holder value. How can they freely do anything else that they might consider important.Several have similarly said that they would appreciate some sort of formulation based on the concept of maximisation, subject to one or more constraints. This might come out, for example, as ‘maximisation of shareholder vale subject to facilitating and maintaining the economic, social and environmental sustainability of activities, products and services’.The obvious advantage of such an update to the central requirement of the Companies Acts would be that they would have a universal impact – and release creativity in every enterprise to meet the requirement. This would, of course, naturally include every business in the financial sector – which ‘owns’ the ‘doomsday machine’ which is the current global financial system.The financial sector seems to me to really be the very last sector in which narrow, Friedmanite, economic fundamentalism is hunkered down and not really getting the sustainability messages. I suspect that it might resist such a fundamental update to Company law. The backwoodsmen might be out in force. But it should not worry them. Even they have an interest in survival! What better way to preserve the benefits of the capitalist system than to perform a simple tweak that alters the whole game so positively?

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One Response to Companies Act – Maximising Shareholder Value – Time for Change

  1. Peter Martin says:

    A useful presentation that should have a wider airing. We’re over twenty years on from Charles Handy’s lecture ‘What is a company for?’*** but there has been woefully insufficient progress.


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