G Model YCPAC-1757; No. of Pages 12 Critical Perspectives on Accounting xxx (2012) xxx–xxx Contents lists available at ScienceDirect Critical Perspectives on Accounting journal homepage: www.elsevier.com/locate/cpa Financialization and company law: A study of the UK Company Law Review David Collison a, Stuart Cross b, John Ferguson c,*, David Power a, Lorna Stevenson d a School of Business, University of Dundee, DundeeDD1 4HN, Scotland, UK School of Law, University of Dundee, Dundee DD1 4HN, Scotland, UK c Department of Accounting & Finance, University of Strathclyde, Curran Building, Glasgow G4 0LN, Scotland, UK d School of Management, University of St. Andrews, The Gateway, St. Andrews KY16 9RJ, Scotland, UK b A R T I C L E I N F O A B S T R A C T Article history: Received 30 September 2011 Received in revised form 15 March 2012 Accepted 20 July 2012 Available online xxx 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. ß 2012 Elsevier Ltd. All rights reserved. Mots clés: Critique Intérêt public Palabras clave: Crı́tica Interés Público Keywords: Critical Public interest Financialization Company law Corporate governance 1. Introduction This paper examines the widespread acceptance of the maximization of shareholder value (MSV) as the fundamental objective of business activity. In the UK context, this subject was explicitly considered during the Company Law Review (CLR) that began in March 1998 and whose Final Report was issued in June 2001.1 The CLR explicitly addressed what it termed ‘the question of ‘scope’ – i.e. in whose interests should companies be run’ (Company Law Review Steering Group (CLRSG), 2001, p. 41). Two possibilities were initially considered: (i) directors should run the company in the interest of shareholders and (ii) directors should adopt a stakeholder perspective – the so-called ‘pluralist approach’. The outcome of the Review was clear * Corresponding author. Tel.: +44 0141 548 2944; fax: +44 0141 552 3547. E-mail addresses: d.j.collison@dundee.ac.uk (D. Collison), s.r.cross@dundee.ac.uk (S. Cross), john.ferguson@strath.ac.uk (J. Ferguson), d.m.power@dundee.ac.uk (D. Power), las27@st-andrews.ac.uk (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. 1045-2354/$ – see front matter ß 2012 Elsevier Ltd. All rights reserved. doi:10.1016/j.cpa.2012.07.006 Please cite this article in press as: Collison D, et al. Financialization and company law: A study of the UK Company Law Review, Crit Perspect Account (2013), doi:10.1016/j.cpa.2012.07.006 G Model YCPAC-1757; No. of Pages 12 2 D. Collison et al. / Critical Perspectives on Accounting xxx (2012) xxx–xxx support for shareholder primacy with ‘the basic goal for directors’ being ‘the success of the company in the collective best interests of shareholders’ (CLRSG, 2001, p. 41). The resultant Companies Act (CA) 2006 requires a director to ‘act in the way 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’ though directors must also ‘have regard to’ a range of other interests including employees, the community and the environment (Ch. 2, Pt 10, 172 (1)). The previous wording in S309 of the CA 1985 had simply stated that the matters to which the directors of a company had to have regard to when performing their functions included ‘the interests of the company’s employees in general, as well as the interests of its members’; thus the duty of directors in the previous legislation was ‘to the company (and the company alone)’.2 The current paper examines the process which led to the CLR’s preference for MSV in its Final Report. The methods used include a review of relevant documentation and interviews with a range of interested parties including members of the CLR Steering Group (CLRSG), members of other CLR Working Groups, and individuals with board level experience of listed companies. While the main empirical focus is therefore the UK, our analysis is informed by research in the political economy tradition concerned with the phenomenon of ‘financialization’ – ‘the ascendancy of finance capital over industrial capital, and . . . profitability based on financial returns from credit markets and speculation’ (Arnold, 2009, p. 58). As Krippner (2005, p. 181) points out, ‘in a world where accumulation occurs predominantly through financial activities, one would expect systems of corporate governance to reflect the imperatives of financial markets’. In this respect, our paper is concerned with a particular aspect of financialization – i.e. ‘the ascendancy of ‘shareholder value’ as a mode of corporate governance’ (Krippner, 2005, p. 181; see also Dore, 2000; Epstein, 2005).3 Within a wider international context, the findings of the current analysis highlight how evaluations of alternative approaches to the conduct of business were quickly curtailed and the primacy of shareholder value maximization accepted.4 The study was motivated by an interest in the extent to which the case for or against MSV was considered during the CLR process; this motivation recognizes that the fundamental legal objectives which guide business strategy and operations can have both economic and social impacts and that evidence about the latter in particular could play some role in assessing the regulatory framework within which business operates. There is, of course, a lively political and media debate about the interests which business should serve that arguably reflects the perceived significance of the issue for wider society. The central dispute concerns the right of one particular stakeholder group in business, the shareholder group, to have its interests maximized. This debate is of course deeply political although within the practices of accounting and finance it scarcely seems to take place at all, at least within Anglo-American culture (Collison, 2003). The rest of this paper is organized as follows. Section 2 reviews the literature concerning the emergence of, and the rationales for and against, shareholder primacy in the context of financialization. Section 3 presents a brief overview of relevant aspects of the CLR process and the subsequent events which led up to CA 2006. Section 4 contains the main empirical contribution of this paper; it reports on a series of in-depth interviews with a range of interested parties, the majority of whom were directly involved in the CLR itself. Section 5 concludes; it provides a summary and discussion of the findings. 2. The rationale for shareholder primacy 2.1. Maximization of shareholder value: intellectual roots and critique In their overview of the debates surrounding the intellectual underpinnings of shareholder value, leading authors distinguish between two traditions: (i) the ‘reformist liberal collectivist critique of the rentier and the financier from the 1920s and 1930s’ and (ii) the emergence of agency theory in the 1980s (Erturk et al., 2008, p. 30; see also Aglietta and Reberioux, 2005). The former primarily considers the legal position of the shareholder resulting from the separation of ownership and control and whether the rights of property should extend to passive owners. Berle and Means’ (1932), The Modern Corporation and Private Property, is often identified as the seminal text in this tradition; although, their contribution did not emerge in isolation (see Dodd, 1932). The agency theory perspective seeks to re-establish the primacy of the shareholder. While associated, in particular, with the work of Jensen and Meckling (1976) and Fama (1970, 1980), the earlier contributions of Coase (1937, 1960), Demsetz (1967), Alchian (1965, 1969) and Manne (1962, 1965) were pivotal to the development of this tradition. Jensen and Meckling (1976) and Fama (1980) emphasized the disciplinary role of the market and asserted that ‘discretionary management objectives [were] not in the (financial) interests of owner-shareholders’ (Erturk et al., 2008, p. 30; see also, Aglietta and Reberioux, 2005). Agency theory represented a more radical opposition to the popular liberal 2 Of course, Section 309 of the CA 1985 was only one of several sources regarding the duties of directors. The common law fiduciary duty and the duty of skill and care were more commonly recognized duties not derived from legislation. 3 Armour et al. (2009) state that ‘Core institutions of UK corporate governance, in particular those relating to takeovers, board structure and directors’ duties, are strongly orientated towards a norm of shareholder primacy’. 4 A very important implicit restriction in both the empirical and literature based components of this research should be made explicit here. Our interest is in ‘large companies with real economic power’ (to borrow a form of words from CLRSG, 2000a, p. 13) not in smaller private companies which happen to share a similar legal status but which are, in substance, very different entities. It should be noted that the CLR explicitly identified this difference and sought also to recognize the needs of small companies in their deliberations. Please cite this article in press as: Collison D, et al. Financialization and company law: A study of the UK Company Law Review, Crit Perspect Account (2013), doi:10.1016/j.cpa.2012.07.006 G Model YCPAC-1757; No. of Pages 12 D. Collison et al. / Critical Perspectives on Accounting xxx (2012) xxx–xxx 3 collectivist views of Berle (1954, 1963) and Galbraith (1967) because it rejected the concept of ownership, arguing that the firm is merely a ‘device to facilitate contracting between individuals’ (Parkinson, 1993, p. 178). According to Fama (1980), while shareholders own the capital contributions, this should not be confused with the ownership of the firm. The notion of an ‘agency relationship’ was introduced to describe the relationship between shareholder (principal) and manager (agent), with the assumption that the principal has the power to control and direct the actions of the agent (Aglietta and Reberioux, 2005, p. 29). In order to reduce ‘agency costs’ (i.e. the loss to shareholders resulting from management decisions which are not in the shareholders’ financial interest) within this setting, shareholders will seek to align managers’ interests with those of the shareholders through monitoring and incentive mechanisms (Aglietta and Reberioux, 2005; Parkinson, 1993). According to Aglietta and Reberioux (2005, p. 29), Jensen’s work in particular ‘contributed to legitimizing hostile takeovers in the United States . . . as well as certain complicated financial structures, such as leveraged buy-outs . . . the proliferation of which between 1984 and 1989 marked the renewal of shareholder value’. 2.2. Financialization and the critique of shareholder value The publication of Jensen and Meckling’s (1976) work on agency theory coincided with a more prominent role for capital markets in the economy – the phenomenon that is frequently referred to as ‘financialization’ (Aglietta and Reberioux, 2005; Arrighi, 1994; Erturk et al., 2008; Froud et al., 2006; Krippner, 2005. For Aglietta and Reberioux (2005, p. 1), ‘financialization is driven by two movements. The first is the growth in the liquidity of capital markets. . . the second is the upsurge, in these same markets, of investment funds, responsible for the management of continually increasing savings’. In terms of growth and liquidity in financial markets, Erturk et al. (2008) drew attention to the liberalization of markets and the creation of sophisticated financial products. In explaining the reasons for an upsurge in investment funds, Erturk et al. (2008) point to the ‘the growth of company pensions increasingly invested in ordinary shares by intermediary fund managers’ in both the UK and US towards the end of the 1960s. For example, in 1963, 54.0% of shares in the UK were held directly by UK individuals. By 2008, this pattern had radically shifted, with only 10.2% of shares being held by UK individuals (see Office for National Statistics, 2010). According to Aglietta and Reberioux (2005), this shift away from individual ownership changed the dynamic of financial markets, giving institutional shareholders considerable power and influence over corporate management either directly through ‘participative influence (voice)’ or through the ‘sale of securities (exit)’ (see also Froud et al., 2006). These structural changes to financial markets have had a profound impact on listed companies where the ‘ideology of shareholder value has played and continues to play an essential role’ (Aglietta and Reberioux, 2005, p. 1). The ‘rhetoric’ of shareholder value has both emerged from this historical context and contributed to its trajectory by defining the contours of contemporary Anglophone capitalism. The emergence of a shareholder value discourse in the 1990s and its propulsion to the sine qua non of business success, has engendered both significant changes at the level of the firm as well as transforming the macro social and economic landscape (Aglietta and Reberioux, 2005; Froud et al., 2006). Arguably, the conclusions of the CLR and the subsequent emphasis on the duty of directors to run a business in the interests of shareholders strengthened the legal backing for the process of financialization. The previous legal position had stressed a duty to the company itself rather than the shareholders per se; the new wording explicitly identified shareholders as those whose interests should be paramount.5 While the agency-theory-informed assumption that the interests of shareholders should be given primacy is predominant in both the extant business literature and policy prescriptions, the liberal critique of the rentier has not become obsolete. Among other issues, discussions in this area have drawn attention to problems associated with assumptions of shareholder ownership, shareholders as bearers of risk, and directors’ duties to shareholders vis-à-vis other corporate stakeholders. Indeed, the core assumption that those who invest in a company are its true ‘owners’ has been continually challenged in the literature. For example, in the early 1950s, Goyder (1951) began to express views similar to those delineated by Dodd (1932). In a more recent articulation of the same argument, Williamson (2003, p. 514) argues that ‘the idea that shareholders own a company should also be challenged. What shareholders own is some proportion of the company’s shares’ (see also, Ireland, 1999, 2001; Horrigan, 2008; Kay, 1997; Parkinson, 1993). However, while Parkinson (1993, p. 34) acknowledges that ‘shareholders are not the owners of the company’s assets6 as a matter of strict law, they are in substance the owners by virtue of being the contributors of the company’s capital’.7 The justification that the interest of shareholders should be given primacy because they are risk-takers by virtue of being residual claimants has also been questioned. Not only is the ‘link between risk-taking and the right to control . . . a fragile foundation on which to base shareholder value’, but the actual risk assumed by shareholders is, arguably, relatively small (Aglietta and Reberioux, 2005, p. 34). For example, Goyder (1951, p. 17) notes that a shareholder’s risk is limited and hence 5 Of course Keay (2010, p. 17) points out that the phrase ‘the interests of the company’ has often been misunderstood. He notes that ‘[m]any have said that it means the interests of the shareholders as a . . .general body’, although he does note that ‘there are cases in which judges have played down the preeminence of shareholders’ interests’. He argues that the phrase in the CA (2006) which refers to ‘members as a whole’ has the benefit of being used elsewhere and of being interpreted by judges in other settings as meaning ‘the present and future shareholders’. 6 In a recent speech, Haldane (2011) highlighted the relative insignificance of the stock market as a source of capital for banks; Specifically, he stated that ‘ownership and control rights for banks are vested in agents comprising less than 5% of the balance sheet’ (p. 11). 7 Parkinson (1993, p. 34) also acknowledges that some may view it as a ‘mistake to regard shareholders as owners at all; they are mere investors’ and that company law fails to acknowledge the ‘complex reality of the modern large corporation’. Please cite this article in press as: Collison D, et al. Financialization and company law: A study of the UK Company Law Review, Crit Perspect Account (2013), doi:10.1016/j.cpa.2012.07.006 G Model YCPAC-1757; No. of Pages 12 D. Collison et al. / Critical Perspectives on Accounting xxx (2012) xxx–xxx 4 ‘known in advance’, whereby the worker’s risk is often ‘unknown and unforeseeable’ (see also, Aglietta and Reberioux, 2005; Ireland, 1999). Furthermore, the liquidity of stock markets allows shares to be traded and for shareholders to diversify and spread their risk – again, options not readily available to employees and other stakeholders (Goyder, 1951; Aglietta and Reberioux, 2005). Despite the absence of proprietary rights to the company’s assets and the (relatively) negligible degree of risk assumed by shareholders, the ‘outworn and defective legal structure’ still enforces directors to act in the sole interest of shareholders (Goyder, 1951, p. 25). For Goyder (1951), privileging the interests of shareholders over workers, the community and consumers, amounts to a lack of accountability, leads to unrest and friction within the structure of industry, and is simply ‘indefensible on the grounds of justice’. That this question was considered by the CLR and primacy nonetheless accorded to the rights of shareholders (albeit in a slightly modified form) suggests that company law has both shaped, and been shaped by, the process of financialization.8 The process whereby the reaffirmation of shareholder primacy emerged from the deliberations of the CLR is the main focus of the current paper. A description of this process constitutes the next section of the paper. 3. The CLR process In addition to its final report in July 2001, the CLR issued three consultation documents, undertook a range of specific consultations, conducted informal soundings and received well over 1000 responses or submissions. It represents one of the largest investigations into company law that the UK has ever witnessed; indeed, when passed, the resultant CA 2006 was the longest single piece of legislation ever enacted (Hansard, 2009). The process began with a relatively brief 18-page document Modern Company Law for a Competitive Economy issued in March 1998; it provided an overview of the issues to be examined, the objectives to be met and the terms of reference for the Review. The Review process was led by an independent Steering Group (CLRSG) whose work was in four main stages, each evidenced by a published, and widely distributed, document which: (i) identified the work undertaken by the Steering Group at that stage; and (ii) presented questions and thoughts for interested parties to respond to. In addition, various Working Groups were established by the CLRSG to consider specific issues. Finally, a 52-member Consultative Committee was set up, representing ‘all the interested constituencies, business, the professions, the trade unions, investors large and small, government departments, regulatory bodies and non governmental organizations’ (Rickford, 2002, p. 18) which acted as a sounding board and discussion forum for Steering Group proposals as these emerged. This committee met ten times over the three years of the Review period. The CLRSG issued its first consultation, The Strategic Framework, in February 1999. The 224-page document presented an analysis of a number of key issues and, in some cases, identified a preference as to what its authors thought the outcomes should be. For example, the interests which company law should serve were discussed in Chapter 5 of this document; enlightened shareholder value and pluralist approaches were presented at the start of this chapter. At the end of this presentation, The Strategic Framework clearly showed support for the former over the latter. The Strategic Framework outlined some of the options and the potential difficulties involved in clarifying directors’ duties and also articulated arguments for and against a more pluralistic notion of directors’ duties within the context of established British business culture. One of the issues that generated many responses related to the role of accounting and reporting requirements – especially the proposed Operating and Financial Review9 (OFR) – in ensuring that companies were operated for their ‘proper purposes’. According to the DTI’s summary of respondents’ submissions, views ‘were divided almost equally between those advocating and those resisting change’. Respondents not wishing to see any change highlighted the additional cost that might be incurred from any increased disclosure, and the competitive disadvantages that such disclosure would place UK companies at, relative to their international counterparts. The opposite view was also put forward by other respondents. For example, it was suggested that this reporting ‘would be a very effective way of monitoring directors in the context of a non-enforceable pluralist approach’. They argued that ‘access to [such information] could assist stakeholders in asserting their rights . . . [and] in a democratic society of which companies were a part, the wider public had a right to information on corporate standards and the social and environmental impact of companies’.10 Following this period of consultation, the CLRSG issued its second major strategic document Developing the Framework in March 2000 (CLRSG, 2000a). In this document, discussion about the ‘pluralist’ or stakeholder approach was abandoned. Instead, the Steering Group proposed the twin components of: 8 This statement is illustrated by the legal conceptualization of the share as an item of property, the votes attaching to which can be used as the shareholder sees fit. This point is also evident from the fact that courts have been willing to uphold contracts where shareholders agree among themselves how they will exercise their voting rights. 9 For further discussion and analysis of the development and ultimate cancellation of the Operating and Financial Review see Owen et al. (2005) and Cooper and Owen (2007). 10 Thus, one role advanced for the OFR was the idea that it might act as a counter-balance against concerns over the ‘non-enforceable’ duties of directors under the pluralist approach. Certainly, concerns were expressed in the literature about wide range of stakeholder interests that directors might have to consider if the single goal of MSV was dispensed with (Jensen, 2001). For some of the respondents to the Strategic Framework document, enforceability issues lead to a rejection of the pluralist approach. However, there was no evidence in the discussions with those involved in the CLR that this was the major reason why the pluralist approach was rejected; rather, they implied that the pluralist approach was so different from the existing status quo within the UK that such a dramatic change was not countenanced. Therefore, the CLRSG did not appear to consider the extent to which the law might be used to influence behaviour without necessarily creating enforceable duties. Please cite this article in press as: Collison D, et al. Financialization and company law: A study of the UK Company Law Review, Crit Perspect Account (2013), doi:10.1016/j.cpa.2012.07.006 G Model YCPAC-1757; No. of Pages 12 D. Collison et al. / Critical Perspectives on Accounting xxx (2012) xxx–xxx 5 Table 1 A summary of interviewees. Role CLR S1 S2 N1 N2 S3 W1 P1 S4 W2 T1 W3 W4 C1 CLR Steering Group CLR Steering Group NGO NGO CLR Steering Group CLR Working Group Secretary of State CLR Steering Group CLR Working Group Independent ‘think tank’ CLR Working Group CLR Working Group CLR Consultative Committee X X B1 B2 Board member Company secretary and board member Other X X X X X X X X X X X X X Note: Interviewees are listed in chronological order of interview. Two of the working group interviewees were from Working Group G1 which dealt with ‘Accounting, reporting and disclosure’, and two were from Working Group E which dealt with ‘Corporate governance: purpose of the company and the role of the directors’. an inclusive Enlightened Shareholder Value (ESV) approach to directors’ duties that requires directors to have regard to all the relationships on which the company depends and to the long, as well as the short, term implications of their actions with a view to achieving company success for the benefit of shareholders as a whole; and . . . wider public accountability: this is to be achieved principally through improved company reporting, which for public and very large private companies will require the publication of a broad operating and financial review which explains the company’s performance, strategy and relationships (eg with employees, customer and suppliers as well as the wider community). The last of the three major CLRSG consultations – Completing the Structure (CLRSG, 2000b) – was issued in November 2000; it invited comments on a number of topics such as corporate governance including the nature of directors’ duties and the function of the OFR and the proposed regulatory and institutional framework for company law. Some 195 responses were received to the largely technical questions in Completing the Structure. In summary, the CLRSG recognized early on in the Review process that a central question to be addressed was: ‘in whose interests a company’s affairs should be conducted?’. It was recognized that the UK’s existing approach to this issue was reflected in a shareholder value predicated stance which saw companies managed for the benefit of shareholders; moreover, this approach gave shareholders primacy in terms of control insofar as directors were required to manage companies on behalf of, and in the interests of, their members. The CLRSG also recognized, however, that another possible approach to the central question was to consider a pluralist perspective. Such an approach would involve directors conducting those affairs for the benefit of all of the company’s stakeholders and involve a balancing of the interests of a wide and diverse range of parties who might be affected by the company’s activities. In The Final Report of June 2001, the CLRSG did not adopt the shareholder value approach in its most stark form but recommended ‘enlightened shareholder value’. The concept of enlightened shareholder value still required directors to act in the best interests of shareholders but that obligation was, arguably, tempered by a broader and more inclusive approach to the obligation which required directors to consider the interests of others and could be interpreted as placing less emphasis on short-term wealth generation. In rejecting the pluralist approach, the CLRSG took the view that it would confuse the issue of directors’ duties and offer directors little by way of guidance in decision-making. The key role of directors’ duties along with the OFR as the ‘two pillars’ of the proposed approach to the ‘scope’ issue had been prominent in the CLRSG’s third document (CLRSG, 2000b, p. 33). The ESV approach was accepted by the Government and ultimately found its way into the 2006 Act. 4. Method Our interviewees (see Table 1) included nine direct participants in the Company Law Review process: four of these were members of the Steering Group (who also sat on Working Groups); four were members of Working Groups, one was a member of the Consultative Committee and one was a leading politician in the government department (the DTI11), under whose aegis the independent review was carried out. In addition, we spoke to two leading figures in the NGO movement and a commentator from an independent think tank who was informally involved in the Review process and whose contribution 11 The government department responsible for company law matters and whose secretariat carried out the CLR has had several manifestations and changes of name. At the time of the Review it was known as The Department of Trade and Industry (DTI). The DTI was reorganized when the Department for Business, Enterprise and Regulatory Reform (BERR) was created in June 2007; and it, in turn, was reorganized in June 2009 when the still extant Department for Business, Innovation and Skills (BIS) was formed. The name used in this paper reflects the appropriate chronological context. Please cite this article in press as: Collison D, et al. Financialization and company law: A study of the UK Company Law Review, Crit Perspect Account (2013), doi:10.1016/j.cpa.2012.07.006 G Model YCPAC-1757; No. of Pages 12 D. Collison et al. / Critical Perspectives on Accounting xxx (2012) xxx–xxx 6 to the broad debate surrounding the CLR had been acknowledged by other interviewees.12 We also spoke to two members of boards of directors of listed companies regarding the impact, in practice, of the new wording on directors’ duties introduced in the CA 2006. In order to allow our interviewees to speak candidly, the interviews were carried out on a non-attributable basis. Therefore we do not describe the backgrounds of our interviewees in great detail. This is because, given the publicly visible roles that most of them fulfilled as part of the CLR process, their identities could be too readily apparent. Nevertheless, an inspection of Table 1 indicates that all of the interviewees shared a great deal of interest, knowledge, and experience in relation to the matters explored in this project. Overall, the range of backgrounds and varied perspectives of those interviewees involved in the CLR supply a reasonably broad and a very well informed basis for our paper.13 5. Results 5.1. CLR process Very different views were expressed by interviewees regarding both the manner in which the CLR operated and the value of the work undertaken. Some regarded the CLR as a well run process that facilitated a wide-ranging discussion of ideas and achieved ‘an intelligent result which is looked on with respect and some admiration in other parts of the world’ (W4). In the opinion of others, however, this was an opportunity that was not fully realized. For example, S1 argued that ‘the Steering Group played no real role in anything at all and was recruited as a rubber stamp essentially for the DTI who [had the] very deliberate intention not to have any meaningful discussion of the issues’. However, this interviewee did acknowledge that ‘there was more substance to [the deliberations of] the Working Groups’. There were other trenchant criticisms of the Review. T1 saw it as ‘one of the great missed opportunities’ while S2 highlighted that the process was characterized by no detailed discussion of principles; instead, S2 argued that the lawyers on the committees focused on practical matters and ‘were not interested in the bigger picture’. T1 stated that: ‘The question of ‘in whose interests are companies operated and controlled’ was never seriously asked’. One possible reason why ‘the bigger picture’ was not fully considered by the CLR is that, in the opinion of a sizeable number of the interviewees, the breadth of expertise and opinion involved in the Review was relatively narrow. A number of those interviewed suggested that the shareholder primacy model had dominated the thinking of most participants involved in the Review. For example, W3 argued that: [The Steering Group] wasn’t very representative at all of the stakeholder perspective. [Those included] in this process were people who were already involved in the sort of way that the company and company law operates rather than the much wider spectrum of the kind of groups and people who are affected by it. Interviewee N2 supported this view and pointed out that ‘the social, environmental or non-financial aspects [of corporations] were of less importance [to the CLR] than the financial or legal aspects’ of these entities. N2 went on to say that the CLR membership ‘certainly wasn’t representative of society which [was surprising], given the role that companies play in society’. As for the breadth of expertise and opinion amongst those who carried out the Review, T1 suggested that the participants ‘were extraordinarily able but they were selected to provide one answer that there should be negligible change’ to the notion that companies should be run in the interests of shareholders. Interviewee W2 attributed the narrow range of expertise and opinion14 on the CLR committees to the nature of the appointment process: [The CLR had] very good people indeed on the various committees. But they were all insiders or establishment [figures] in the sense of knowing company law or knowing companies. They weren’t people who were about to think outside the box. . . . So from a stakeholder perspective, the [CLR group] wasn’t particularly balanced. W4 agreed with this perspective to some extent in acknowledging, with respect to the Steering Group, that ‘there was clearly a bias towards those on the inside’. W4 thought that people got ‘invited onto things like this because they were probably personally known; . . . they’re probably meeting each other at the FT [Financial Times] drinks party . . . and . . . therefore it makes it a touch centralized and elitist.’ Of course, in addition to the Steering Group, many people took part as members of Working Groups, and as members of the formal Consultative Committee, while public comment was also invited. A number of interviewees did think that there was a wide range of views among ‘the several hundred people involved’ (S4). Their perception was characterized by the response of W1 whose working group was ‘pretty large and very diverse’ with ‘members who had wider perspectives’. In 12 In addition to the interviewees listed above, an informal meeting was held with a number of officials from BIS at the start of the project. Excluding the board members (B1–B2), our other interviewees’ backgrounds and expertise included: policy making at a very senior political level, the legal and accounting professions, institutional investment, board level business experience, management consultancy, employee representation, the NGO sector, academia and journalism. Typically our interviewees had experience of more than one of these categories. Thus, a mix of perspectives was sought about the CLR process and the role of shareholder primacy in the UK. 14 For detailed discussion and empirical evidence relating to membership of the CLR and of committees which have investigated corporate governance, see Jones and Pollitt (2001). 13 Please cite this article in press as: Collison D, et al. Financialization and company law: A study of the UK Company Law Review, Crit Perspect Account (2013), doi:10.1016/j.cpa.2012.07.006 G Model YCPAC-1757; No. of Pages 12 D. Collison et al. / Critical Perspectives on Accounting xxx (2012) xxx–xxx 7 general, this interviewee thought that there was ‘a good cross section’ on the group and that they ‘had some wide ranging discussions’. There was a similar range of views in answer to the question about the scope of evidence considered by the CLR; for S3, ‘the one thing that was not lacking was evidence’; but some interviewees were critical of the extent to which evidence was used. For example, interviewee S2 thought that the CLR process involved ‘less a matter of evidence and more one of debate’. This point was reiterated by W2: It was more a matter of analysis rather than of evidence and the evidence was mainly the views expressed by people who were part of the process. . . . How their opinions were taken into account was a bit of a black box. On the issue of whether committees gathered evidence or just conducted debates, W1 responded that the Working Group ‘debated things’. Those critical of the evidence and the scope of the issues considered by the CLR suggested that it lacked an international focus (W3), was ‘biased in favour of the status quo’ (N2), and did not include fundamental questions about the nature of the corporation (S1). W3 would have welcomed more international experience as part of the Review15: people who had genuine working experience of other models of corporate governance, preferably a positive experience, as a contrast to constant bashing [of] the German model [which] you get here as common currency. And W3 was extremely critical of the limited consideration given to international evidence from countries where financialization has been less prominent and the focus on MSV less pronounced. The composition of the CLR committees and the nature of the evidence considered may go some way to explaining why a sizeable number of the interviewees were disappointed with the decision of the Review to opt for enlightened shareholder value. For example Interviewee T1 believed that something significant could have emerged if the Government had resisted pressure from lobby groups interested in protecting the status quo: [The CLR] was one of the great missed opportunities of the Labour Government: an emasculation really of what was possible. . . . It was a capitulation. . . . A very particular view by business of what business is about [dominated]. The CBI and the business lobby . . . achieved the lowest common denominator on regulations. . . . . . . there are outlier businesses and shareholder institutions who actually do take a stakeholder view . . . but they weren’t given a voice. This view was re-iterated by N1 who saw the CLR as a ‘real wasted opportunity . . . [where] the government could have gone and should have gone much further’. Others, by contrast, commended aspects of the CLR on the grounds that ‘the consideration of the issues was important and groundbreaking’ (N2). Interviewee N2 also thought that the CLR was successful in raising the question of whether a stakeholder or shareholder approach should underpin UK company law; but was disappointed that the Review had come down on the side of the shareholder model. W2 was also unimpressed by the effort expended on stakeholder interests and much less sanguine about the enlightened shareholder value concept: It was assumed that . . . companies were just managed for the benefit of shareholders and the only real question was . . . the extent to which the benefit of shareholders was also the benefit of . . . other stakeholders. That . . . debate was regarded as open I think after the first main report but in the second it was completely closed down and it was enlightened shareholder value all the way from then on in. . .. [I was] disappointed but not surprised when the second report came out and it was enlightened shareholder value . . . the second report said, OK we’ve had enough of this pluralism nonsense, now let’s focus on shareholders. 5.2. Directors’ duties in the Companies Act 2006 A number of interviewees thought that the new framework for directors’ duties in CA 2006 was an improvement on what had gone before while others had very significant reservations. The new legislative framework requires a director to ‘act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members of a whole’ while directors should also ‘have regard’ to a range of other matters including the interest of employees, and the company’s impact on the community and the environment (Section (S) 172).16 While, within S172, the reference to stakeholders other than shareholders is now more widely drawn (only employees were mentioned before17) a number of interviewees were keen to emphasize that this change should not be misinterpreted; 15 Some CLR-commissioned studies, in particular, investigated a range of international approaches to company law. See, for example, Jordan (1997) and Milman et al. (1999). 16 The Department of Business, Innovation and Skills’ own evaluation of the Companies Act (2006) indicates that ‘most stakeholders and businesses interviewed . . . were positive about the codification of directors’ duties [in S. 172]’ (p. 61). Indeed, this evaluation found that ‘awareness of the change relating to directors’ duties was high (79%)’. However, the evaluation report goes on to admit that only ‘one fifth of those who responded to the codification of directors’ duties agreed the statutory statement had had an impact on the way directors discharged their duties’ (p. 61). 17 The original duty to have regard to the interests of the employees was statutory in basis (Section 309 of the Companies Act (1985)) and not part of the common law duty on which Section 172 is based. Please cite this article in press as: Collison D, et al. Financialization and company law: A study of the UK Company Law Review, Crit Perspect Account (2013), doi:10.1016/j.cpa.2012.07.006 G Model YCPAC-1757; No. of Pages 12 D. Collison et al. / Critical Perspectives on Accounting xxx (2012) xxx–xxx 8 shareholder interests were still paramount. Some emphasized this point with approval while others were clearly disappointed. Interviewee S4 was emphatically in the former group: it’s to my mind vitally important that people should understand that it’s shareholder value that’s the objective and not the listed items later in the section. The listed items later in the section are invoked to the extent that they’re relevant in doing the business of making decisions on behalf of shareholders to achieve success. In fact S4 was concerned that a stakeholder ethos would be wrongly imputed to the new wording: I think a lot of people are going to . . . think that it’s basically a stakeholder thing – you balance one thing against another, which is not the case. The main rationale put forward for the primacy of a single stakeholder, as is made clear in the CLR documentation, is that directors should have a single clear objective; otherwise, the argument runs, they would be allowed undue discretion which might then be abused. As S4 put it, ‘the important thing is that directors have this single objective and the other objectives are subordinate’. Interviewee C1 was of the view that ‘it is virtually impossible to have accountability if you have more than a single objective’. Very different opinions were held as to whether the new form of words in S172 would focus more attention on stakeholders which was a concern of S4. P1 saw it as ‘encouraging more of a stakeholder mentality’ which should get companies thinking about their corporate responsibilities towards ‘their workforce . . . and the environment’. Others were less certain about whether the wording had in fact been a victory for those who wanted a more stakeholder-orientated approach to underpin company law. For example N2 and W2 all highlighted that S172 prioritized the interests of shareholders over other stakeholders. Indeed, W2 argued that: The statement is unsatisfactory in that stakeholders sort of get a look in [but don’t] affect what [the company] will do. It is not nearly as good as a substantive requirement [to take account] of stakeholder interests. Interviewee N2 suggested that time was needed to see how the courts would interpret the new requirements. However interviewee S1 also suggested that ‘the judges would have probably adopted a more shareholder friendly stance in 2000 than they would have in 1960’: this view is consistent with the emphasis given by S1 to the impact of shareholder value rhetoric in recent decades. This perception may also be compared with the view, expressed to us by an official of BIS (Department for Business, Innovation and Skills18), that the CA 2006 wording for directors’ duties reflected what was thought to be the common law position – i.e. the position that would have been upheld by the courts. In general, the question about satisfaction with the wording in S172 elicited the strongest negative response among all of the answers provided; some nine of the 13 interviewees expressed dissatisfaction with the wording in the Act. Interviewees W2 and N2 expressed some concern with the phrase ‘having regard to’ which was described as a ‘woolly concept’ (N2).19 Interviewee N1 saw it ‘as a huge retrenchment’ from the spirit of enlightened shareholder value which had been put forward by the CLR; in their view ‘having regard to’ doesn’t mean that ‘you look after the interests [of employees and the environment]. You just see how their interests might affect you’. It is worth noting that other interviewees regarded the ‘enlightened shareholder value’ concept as having precisely this meaning. Interviewee W3 had wanted the phrase ‘having regard to’ replaced with ‘to take account of’ on the grounds that ‘the directness of the link was stronger’. In fact, this interviewee suspected that the new form of wording in S172 made directors’ duties more shareholder-orientated. N2 believed that, in practice, the wording of S172 would lead directors to focus on optimizing share price and, as a consequence shareholder value. N1 was also quite clear on its limitations: I’ve heard a few people say that what we have in the UK is brilliant because it is a hybrid approach between enlightened shareholder value and a stakeholder approach. . . . It is not. . . . It’s purely a shareholder approach. The directors’ obligations are still to the shareholder. S2 saw the wording as ‘a political fudge’ which allowed the government to claim that they were making companies more responsible while at the same time having little or no effect on the actions and decisions of directors. Interviewee S1 was even more critical, seeing the wording in S172 as a retrograde step, having ‘rather liked the pre-2006 declaration of directors’ duties as being to the company’. Thus, this person argued that the wording in S172 increased the emphasis of directors’ duties on short-term shareholder interests. A comparison of the wording of specific examples of directors’ duties before and after the CA 2006 corroborates the view of S1. The previous wording in S309 of the Companies Act 1985 was as follows: (1) The matters to which the directors of a company are to have regard in the performance of their functions include the interests of the company’s employees in general, as well as the interests of its members. 18 The government department which now has responsibility for the regulation of companies. Interviewee N2 pointed out that during the passage of the Companies Bill in Parliament, the minister in charge – Margaret Hodge – stated that having regard to ‘doesn’t mean just to listen but also to act’. However, N2 argued that this statement ‘was not actually the law; it is only a statement by a minister [and] the enforcement of that is at best weak’. 19 Please cite this article in press as: Collison D, et al. Financialization and company law: A study of the UK Company Law Review, Crit Perspect Account (2013), doi:10.1016/j.cpa.2012.07.006 G Model YCPAC-1757; No. of Pages 12 D. Collison et al. / Critical Perspectives on Accounting xxx (2012) xxx–xxx 9 (2) Accordingly, the duty imposed by this section on the directors is owed by them to the company (and the company alone) and is enforceable in the same way as any other fiduciary duty owed to a company by its directors. The relevant wording in S172 CA 2006 is: A director of a company must act in the way 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 – [the subsequent sub-paragraphs include reference to other stakeholders as outlined above in this paper]. It is apparent that while the earlier form of words did not in practice preclude an emphasis on short-term shareholder interests, the latter form is much more susceptible to such an interpretation.20 5.3. Directors’ duties and maximization of shareholder value Interviewees were asked their opinion about whether the new wording of directors’ duties in CA 2006 positively required directors to maximize shareholder value, or whether it was consistent with that objective. Although there was a broad and largely unqualified consensus that the wording was consistent with MSV, a number of respondents clearly regarded this question as under specified. For example interviewee S4 stated that their answer depended on what was meant by maximizing shareholder value, adding that it certainly did not equate with maximizing the share price. When it was suggested that share price reflected the market’s judgement of a company, the robust and succinct response from S4 was that the efficient markets hypothesis was rubbish. A similar perspective was held by W4 who believed that the basic premise of the CA 2006 was that MSV was the implied objective – but not in terms of ‘crude share price’. The responses of interviewees S4 and W4, were consistent with their belief in ‘enlightened shareholder value’ in which the interests of all stakeholders were regarded as compatible with MSV in the long term. W1 answered ‘Yes’ to the question of whether directors were required to maximize shareholder value but distinguished between short term and long term value. W2 and W3 also both answered ‘Yes’ with W2 emphasizing that ‘there is no way you can say that [the wording of the Companies Act] entails looking after stakeholders’ interests’. Both interviewees from the NGO sector, N1 and N2, agreed that the wording about directors’ duties was consistent with the MSV objective but were also clear that no absolute obligation was placed on directors: ‘they don’t necessarily have to [pursue MSV]’. N1 pointed out that the new wording could, in theory, give statutory backing to directors who were to ‘trade-off’ shareholder value in favour of other interests, but ‘the law as it stands is not placed to challenge those companies who see [other interests] as not relevant’. Interviewees S1 and S2 responded to this question about what imperative, if any, was placed on directors to maximize shareholder value by referring to the significance of markets as opposed to the wording of the legislation. S1 attributed the shareholder primacy doctrine to the growing influence of financial markets (financialization) since the 1980s while S2 emphasized the takeover culture as the main driver of the focus on MSV. But neither S1 nor S2 saw any inconsistency between MSV and the new wording of directors’ duties in the CA 2006. Our exploration of views from the boardroom included the following observations from B2, a current board member with wide experience as an executive and non-executive director of large quoted companies. His response was, perhaps unsurprisingly, pragmatic: I certainly think that maximizing shareholder value overhangs everything you do . . . – and when you define shareholder value, it’s obviously share price, dividends and things like that. When pressed on the significance of the wording of the 2006 Act B2 stated that: If you said to me you’ve got to prioritize amongst all your shareholders, stakeholders etc. . . . the thing that drives us – . . . the core driver for boards of directors . . . everything we do in terms of when we make investment decisions, when we look at the monthly results – we’re looking at what’s it going to mean for shareholders. Shareholders are knocking on the door a lot more than ever before because the one thing that has come out of the Companies Act as well as the Code and all the other things that have happened recently, is that shareholders very much now want to be engaged. Interviewee B2 contrasted experience of shareholder engagement at AGMs in the early 1990s with current practice; it was noted that the numbers of shares being voted had increased from about 30% to about 80%. B2 painted a picture of directors feeling almost beleaguered by annual voting: ‘you know, everybody’s very conscious of the fact that you can get thrown out on the spot’, and by potentially hostile takeovers ‘You’ve got guys turning up with 24% of the shares and, you know that they can cause all sorts of havoc with the whole board.’ 20 Thus far, decisions by UK courts on cases involving S. 172 have been relatively cautious in their approach to the potentially wider interpretation which could be drawn. In Cobden Investments Ltd. v RWM Langport Ltd. & Ors [2008] EWHC 2810 (Ch) the judge states, at paragraph 52, that: ‘The perhaps oldfashioned phrase acting ‘bona fide in the interests of the company’ is reflected in the statutory words acting ‘in good faith in a way most likely to promote the success of the company for the benefit of its members as a whole’. They come to the same thing with the modern formulation giving a more readily understood definition of the scope of the duty’. More recently, the Court of Appeal in Towers v Premier Waste Management Ltd. [2011] EWCA Civ 923 held that the codified duties in the Companies Act (2006), including Section 172, ‘extract and express the essence of the rules and principles which they have replaced’ (para. [3]). Please cite this article in press as: Collison D, et al. Financialization and company law: A study of the UK Company Law Review, Crit Perspect Account (2013), doi:10.1016/j.cpa.2012.07.006 G Model YCPAC-1757; No. of Pages 12 10 D. Collison et al. / Critical Perspectives on Accounting xxx (2012) xxx–xxx These perceptions suggest that the perspectives of interviewees S1 and S2 chimed more with the view from the boardroom than those who envisaged freedom for boards to pursue shareholder value, and therefore, arguably, stakeholder value, in the long term. However B2 also implied that the market is fundamentally short-termist in outlook: ‘I mean, we would all argue in companies that our share price is under-valued’. The takeover culture was also mentioned in this context: ‘you can’t ignore the short term . . . people could come and pick up [your company] for a very low price’. A number of interviewees alluded to the spreading of values associated with Anglo-American capitalism; for example W3 identified MSV as a characteristic of the Anglo-American model and also noted pressure for the EU to become more like the Anglo-American system in relation to shareholder primacy. An arresting, if rather caricatured, view of an alternative approach, was put forward by C1: ‘I think that it is a lot clearer in the Anglo-American economy that we want to maximize shareholder value. . . . [In Japan, directors] aren’t businessmen at all, they are senior civil servants of the Japanese government because the major trading companies are not profit maximizers in any sense of the word. They are stewards of public policy’.21 A number of other interviewees were particularly concerned about the impact of a culture which focuses on shareholderreturns coupled with a regulatory framework which facilitated hostile takeovers. And for many interviewees, absolute levels of directors’ remuneration and their links to what many saw as spurious performance measures were a matter of great concern verging on incredulity. 6. Discussion and conclusions According to Gunnoe and Gellert (2011, p. 270), financialization is both a ‘macroeconomic structural phenomenon and a socio-political process that requires a reconfiguration of social and economic institutions that support capital accumulation’. In the context of financialization, law, or perhaps more specifically, company law, is a key institutional force that both shapes, and is shaped by, wider economic developments. Company law is at the heart of the economy (Bovey, 2008) and has a considerable impact on society more generally (Parkinson, 1993). It is through company law that the duties of directors are defined, which, in effect, shape the fundamental business objectives which directors can pursue. As Krippner (2005) observes, where capital accumulation mainly takes place through financial channels (as opposed to production), then one would expect those objectives and duties to be defined in the interests of the major participants in financial markets: i.e. – shareholders; Palley (2007) notes that this is precisely what has occurred. Since the early 1970s, the increasing concentration of power of shareholders, in the form of institutional investors, has been a defining characteristic of financialization (Aglietta and Reberioux, 2005; Froud et al., 2006; Gunnoe and Gellert, 2011; Ireland, 2009). As Ireland (2009) argues, this concentration has allowed shareholders to more effectively exercise the rights they already possessed in company law. In presenting a study of the UK CLR, this paper provides evidence for Ireland’s (2009) assertions. However, we would contend that the CLR process not only maintained a company law regime which maintained the privileged status of the shareholder – but that shareholders’ interests were further enhanced by this process. One of the most striking findings to emerge from the study was the lack of consideration given to the fundamental question, ‘in whose interests should companies be run?’. In this regard, the CLR was described as ‘a waste of time’, a ‘missed opportunity’, and showed no intention of having a ‘meaningful discussion of the issues’. A possible reason for the perceived failure to address the fundamental ‘question of scope’ was emphasized by a number of interviewees, including some who were supportive of the outcome of the CLR process. In particular, it was noted that the breadth of expertise and opinion represented on the review was rather narrow. It was characterized as being reasonably representative of those who were knowledgeable about company law, but not representative of the wider interests which are affected by it. The ‘bias towards the inside’ and a tendency towards inviting those ‘personally known’ was considered ‘elitist’ by some of the participants in the study. In this sense, it could be argued that the composition of the steering group, whether intentionally or not, would ensure that the status-quo, i.e. the privileged status of the shareholder, was maintained. Participants in the CLR were asked about the evidence that was considered in terms of assessing the relative merits of a shareholder versus a pluralist model. The most common response, amongst both steering group and working party members was typified by the remark that the process was ‘less a matter of evidence and more one of debate’. A strong and specific criticism was the absence of international evidence: it was felt that there were many other options in Europe that would have been worth examining. It seems rather odd that a process which was set up to specifically address the question, ‘in whose interests should companies be run’, would give little consideration to the host of economies which operate a successful alternative. While, this apparent closed-mindedness could arguably be the result of the composition of the steering group, a number of studies have pointed to a further possible reason: the ideology of shareholder value has been exceptionally persuasive and underpins the majority of policy prescriptions relating to corporate governance issues in the UK and US.22 The persuasiveness of this doctrine, according to Parkinson (1993) and 21 This perception is reminiscent of Berle and Means’ prescription for the control of large companies: they argued for a ‘purely neutral technocracy’ to control ‘great corporations’. 22 For example, in the UK the Cadbury Report, the Greenbury and Hampel Committees, the Combined Code, the Myners Review and the Higgs Report all articulate governance mechanisms which privilege the shareholder and are aimed at reducing their ‘agency costs’. Please cite this article in press as: Collison D, et al. Financialization and company law: A study of the UK Company Law Review, Crit Perspect Account (2013), doi:10.1016/j.cpa.2012.07.006 G Model YCPAC-1757; No. of Pages 12 D. Collison et al. / Critical Perspectives on Accounting xxx (2012) xxx–xxx 11 Ireland (2009), lies in the universalistic rhetoric to which it appeals – i.e. social welfare is maximized23 through the pursuit of shareholder value. The CLR envisaged greater transparency in the form of the OFR to ‘take account of the information needs’ of a ‘wide range of users’ as a key part of its original proposals. The OFR was attenuated as the proposal proceeded towards legislation, first by dispensing with the needs of users other than shareholders and then by dispensing with it altogether as a mandatory requirement.24 The OFR had been seen by some interviewees as a way of potentially nudging business culture (subject to shareholder approval) in a pluralist direction; its perceived importance was reflected in the term ‘two pillars’ (CLRSG, 2000b, p. 33) to refer to the complementary role envisaged for the OFR alongside the articulation of directors’ duties. All the interviewees who had had any direct involvement with the CLR were critical of the cancellation of the mandatory OFR and the abrupt manner in which it occurred. However, even had it not been dropped, the extent to which the OFR would have been successful in nudging business culture is questionable. As Goyder (1951) observed, increased transparency and accountability to stakeholders would have little impact if extant legal structures continued to prioritize the interests of one group over all others and excluded some stakeholder groups from effective participation in the company. In terms of directors’ duties, the new form of words explicitly states that directors should act for the benefit of members while having regard to the interests of other stakeholders. The reference to other stakeholders is in keeping with the adjective ‘enlightened’ which qualifies ‘shareholder value’. But the new form of words was described as a ‘fudge’ by one of the Steering Group members, though this term was qualified as a ‘very high quality fudge’ by another. In relation to views about the new form of words, there was perhaps only one point on which all the interviewees agreed. This was that shareholder primacy is the clear intention and thrust of the current law – notwithstanding the notion of ‘enlightened shareholder value’. The widely shared understanding of directors’ duties was that, while the wording acts as a reminder about the interests of other stakeholders, their interests should only be taken into account in order to induce them to contribute to the over-riding corporate objective which is to further the interests of members, which for practical purposes means to maximize shareholder value. The central intention of the CLR, subsequently enshrined in CA 2006, is that the shareholder is sovereign. Acknowledgements The authors grateful acknowledge the financial support from the Association of Chartered Certified Accountants. The authors would also like to thank the people who were interviewed in connection with this research project and the two anonymous reviewers for their insightful comments. References Aglietta M, Reberioux A. 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Please cite this article in press as: Collison D, et al. Financialization and company law: A study of the UK Company Law Review, Crit Perspect Account (2013), doi:10.1016/j.cpa.2012.07.006