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Table of Contents

1. What is the Company and is Company Law Important?

Abstract
One of the central divisions in the debate over ‘what is the company’ is between those that say the company is a hierarchical organisation headed by a managerial team (the board of directors) and those that argue that it is an alternative expression of a market of investors. Within the latter group there are various conceptions of the ‘entityless-ness’ of the company. Some view the company as being some form of investor-orientated organisation while others deny that it exists as any entity at all. The latter theorists are largely drawn from financial economics and construct various economic models of the company (or firm, as they prefer to refer to all business forms). In constructing a model of the company on these lines, they are able to retain the notion of the contracting and bargaining individual. This ideal, rational, self-maximising contractor is lost as a possible actor in the hierarchical entity model, where actors perform according to their role and are subject to the authority of management.
Lorraine Talbot

2. Are Shareholders the Company’s Owners? Claims in Law and Claims in Ideology

Abstract
The question of whether shareholders own the company is one of the key debates in company law and one that directly impacts on the purpose of corporate governance. The debate illuminates the contradiction between the legal position on shareholder claims and the ideological position. The law maintains that the claims of ordinary shareholders are limited to a right to dividend if dividend is declared, a right to vote at general meeting and a right to any residual surplus upon liquidation. It is no more extensive than that. Indeed, the law has been keen to limit the boundaries of the ordinary share, especially when in the early part of the 19th century the share became uncoupled from the actual assets of the company. Historically, as this chapter discusses, the law has consistently attempted to stabilise that which the ordinary share is and has frowned on mechanisms which undermine the surety of the ordinary share. For example, the law has discouraged nil or partly paid shares but where they exist has ensured that the partly paid share contains the same rights as the fully paid share. In contrast, other forms of investments in the company have enjoyed much less stability. The so-called ‘preference share’ is used as an example on this point.
Lorraine Talbot

3. Should Shareholders Have Power Over the Company?

Abstract
Over a century ago Veblen wryly noted that shareholders are engaged in the ‘pursuit of something for nothing’, an inactivity which modern society perversely conceives as superior to getting something from engaging in actual productive activity! In his words, ‘Any person who falls short in this pursuit of something for nothing, and so fails to avoid work in some useful occupation, is a shiftless ne’erdo-well; he loses self-respect as well as the respect of his neighbours and is in a fair way to be rated as an undesirable citizen.’1 However, the current consensus in Europe and in the United States is that shareholders should do a little for something and so shareholder power should be increased and it should be exercised forcefully, meaningfully and responsibly by shareholders.2 I argue here that they should not do more, nor should they have power over the company. Indeed, Veblen’s ‘something for nothing’ scenario is much to be preferred to the current position on shareholder power and activism.
Lorraine Talbot

4. The Board of Directors: Effective Management or A Reflection of Social Inequality and Prejudice?

Abstract
One of the key manifestations of a company’s separate corporate personality is the existence of a board of directors, which is the company’s decision-making body. The board of directors is responsible for all decisions relating to the business of the company, its organisational and financial strategies and its resource decisions, including human resources. The existence of a board which acts for the company is yet another manifestation of the limited nature of shareholders’ ownership. While shareholders may own an entitlement to dividends, they do not own the company per se and so they do not generally speak for the company. It is only in extremis, when the board is breaching its duty to the company and profiting by doing so,1 that the shareholder may seek the court’s permission to act on the company’s behalf in place of the board. When a shareholder seeks to directly represent the company, this is known as a derivative action because the shareholder is deriving that right from a wrong done to the company. Such an action, in that it so radically departs from the governance norm of the board representing the company, has traditionally been highly controlled by the courts, as Cheffins notes (see Chapter 1). Derivative actions enact Alchian and Demseltz’s vision that shareholders will monitor the managers because they will personally gain from enhancing any residual returns.2 Alchian and Demseltz view monitoring as a fluid mechanism; the law significantly restricts its use.
Lorraine Talbot

5. Can Human Rights Shape The Multinational Company?1

Abstract
Thus far we have considered how companies may be shaped by ideology, law, corporate governance and the board of directors (or supervisory board) which may itself be constituted by broader social norms. This chapter discusses the degree to which human rights initiatives and considerations may, or may not, shape the company.
Lorraine Talbot

6. Can Companies be Moral? and the Role of Corporate Social Responsibility

Abstract
How moral can a company be when it is principally bound to please the market? That is the question addressed in this chapter. It begins by considering the importance of the freedom to act for all persons, including legal persons, when they are required to act morally. The chapter argues that the market fetters that freedom, but it also considers scholarship which maintains that being bound to the market does not prevent companies engaging in moral decision making. The chapter goes on to consider the historical shift between periods when political policy reduced the effect of the market on corporate decision making, and those (including the present) when the financial market has dominated. It then considers the sorts of frameworks that might act as a bulwark against market-based decision making and enable corporate morality. This draws on the discussion in the previous chapter and introduces the focus on corporate social responsibility. In discussing corporate social responsibility, this chapter considers how the market is often elicited as a driving force for this form of morality. It considers the problems with the claim that there are market-based reasons for pursuing corporate social responsibility and argues accordingly that corporate social responsibility has low social ambitions. Finally, it considers whether mandating morality is possible given the pressure of the market, and utilises the example of mandatory corporate social responsibility in India as a case study which demonstrates the obstacles to doing so.
Lorraine Talbot

7. What the Company Could Be

Abstract
In this chapter I set out some ideas around what the company could be if corporate governance and company law were reformed. In the perspectives below, the company, if reconceived and reformed, is seen as an organisation which could operate in the interests of all those affected by its activities and who input into its activities. In so doing these perspectives reject the neoliberal premises of modern corporate governance. In the first section, the idea of shareholder primacy is rejected on the basis that it is socially regressive. The alternative model promoted is one which would enable the company to be sustainable and social. The second main perspective assessed rejects the law and economics model of the firm which has been utilised to understand all business forms, from small legal partnerships to large joint stock companies with dispersed share ownership. Instead, a model of the company is utilised which encompasses the notion of many stakeholders represented in many areas of law. The two perspectives adopted offer distinct views of how the company could be, but also contain many synergies. The first perspective promotes a labour-orientated corporate governance, as the goal which most effectively enables sustainability and progressive social outcomes. The second promotes the company as a resource owned in common, with many claimants. Both models seek sustainability and social progress.
Lorraine Talbot
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