Bad and Not so Bad Arguments for Shareholder Primacy In the Introduction of the article of the author Lynn A. Stout pointed out the two arguments in regard to shareholder primacy that were made by Adolph A. Berle and Merrick Dodd. Adolph A. Berle argued for “Shareholder Primacy” in that he believed that the corporation exists only to make money for its shareholders. Merrick Dodd argued against it his view was “the business corporation as an economic institution which has a social service as well as a profit making function”. Although both men have argued over this the result of what the interest of the business lie in still remains unsolved. No one can be sure if the firm exists to increase shareholders wealth or to serve the interests of the stakeholders of the business. Yet there has been no more research has been done after the debate to solve the argument. Therefore from this I can interpret that the argument is whether the interest in the business lies in the interest of the shareholders or stakeholders. So then the author Lynn A. Stout goes on to list the arguments for and against these theories – 1. The Shareholder Ownership Argument for Shareholder Primacy. In this argument the Author considers the most common argument which is that the Business “belongs” to its shareholders in that its main purpose to increase shareholder wealth. While shareholders do not own all of the business the do own a stake in it so for this their rights as “the owners” are quite limited this is where the Agency theory takes effect while shareholders are seen as the owners they do not manage the day to day running of the business that managers do. Shareholders do not receive a salary or wage like managers but rather receive a dividend which only can be received if the directors declare one. So my interpretation is that shareholders no not have any right of control over the firm’s assets. Then Lynn A. Stout goes on to talk about Fischer Black and Myron Scholes famous paper which looks at the options theory from this I can presume that its theory is that is the company is in debt the debtholders have the right to the companies cash where as the shareholders don’t. So the theory behind the whole argument is that while the shareholders are involved in the Business they simply do not own the business.
In this assignment I will discuss about key stakeholders who influence the purposes of two business, the business I have chosen are Tesco and Oxfam. Also, I will be talking about interest owners, customers, suppliers, employees, trade unions and employer associations have in the business. Another point I will be talking about is why business must consider local communities and pressure groups when operating their business.
Bratton, W.W. & Wachter, M.L. (2008). Shareholder primacy's corporist origins: Adolf Berle and the modern corporation. Journal of Corporation Law, 34 (1): 99-152.
Blair, Margaret M. (1995) Ownership and Control: Rethinking Corporate Governance for the Twenty-First Century. Washington, DC: Brookings.
acting for the benefit of his or her shareholders would have had, at the very least, the
Buffett has applied these principles as CEO since 1964 of Berkshire Hathaway, a textile business he purchased and transformed into a holding company that came to own completely or to have substantial stock holdings in a number of profitable companies. Buffett’s business principles are what he calls owner-related: he considers the shareholders as owners for whom he and Charlie Munger, his managing partner at Berkshire, work to serve their interests, and he gives the managers of the constituent companies held by Berkshire the kind of autonomy they would have were they the actual
According with the textbook and other internet sources, Milton Friedman described in his thesis that the main goal of a business is to generate gains or profits. As a result, several business have been using such thesis as a justification for some of the decisions they made. In the case of “A Civil Action” we had the two companies contaminating the little town water with chemicals used during the elaboration of their products. The use of trichloroethylene was apparently causing some of the children of the place to developed respiratory and other cancerous diseases such as leukemia. After the death of several children, people on town began to worry about the situation and everything pointed out ...
This separation between ownership and managerial control in this instance can be problematic as the principal and the agents have different interests and goals. In a large publicly traded corporation such as NOL/APL, shareholders (principals) lack direct control when the CEOs (agents) make decisions t...
Clarke and Cornish (1986) further research stated that the theory should be
Jensen, M.C and Meckling, W.H (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, October, 1976, V. 3, No. 4, pp. 305-360. Available on: http://www.sfu.ca/~wainwrig/Econ400/jensen-meckling.pdf. [Accessed on 20th April 2014].
It has been said that the most popular reason why a company is formed is to take advantages of the limited liability principle. However, we must also consider that although a company is a separate legal personality, it can have unlimited liability, that is, the shareholders may still be liable for the company’s debts.
Lazonick, W., & O'Sullivan, M. (2000). Maximizing shareholder value: a new ideology for corporate governance. Economy and Society, 29(1), 13-35. Retrieved from http://www.uml.edu/centers/cic/Research/Lazonick_Research/Older_Research/Business_Institutions/maximizing shareholder value.pdf
Not all the stakeholders have the same consideration, for example the manager will have more consideration than the customer. And the stakeholders can influence de business positively
Stakeholders are those groups or individual in society that have a direct interest in the performance and activities of business. The main stakeholders are employees, shareholders, customers, suppliers, financiers and the local community. Stakeholders may not hold any formal authority over the organization, but theorists such as Professor Charles Handy believe that a firm’s best long-term interests are served by paying close attention to the needs of each of these stakeholders. The modern view is that a firm has responsibilities to all its stakeholders i.e. everyone with a legitimate interest in the company. These include shareholders, competitors, government, employees, directors, distributors, customers, sub-contractors, pressure groups and local community. Although a company’s directors owes a legal duty to the shareholders, they also have moral responsibilities to other stakeholder group’s objectives in their entirely. As a firm can’t meet all stakeholders’ objectives in their entirety, they have to compromise. A company should try to serve the needs of these groups or individuals, but whilst some needs are common, other needs conflict. By the development of this second runway, the public and stakeholders are affected in one or other way and it can be positive and negative.
Making an analysis of the profitability of the shareholder can be seen that although both companies have similar returns, the source of this return is different.
The Principle of Separate Corporate Personality The principle of separate corporate personality has been firmly established in the common law since the decision in the case of Salomon v Salomon & Co Ltd[1], whereby a corporation has a separate legal personality, rights and obligations totally distinct from those of its shareholders. Legislation and courts nevertheless sometimes "pierce the corporate veil" so as to hold the shareholders personally liable for the liabilities of the corporation. Courts may also "lift the corporate veil", in the conflict of laws in order to determine who actually controls the corporation, and thus to ascertain the corporation's true contacts, and closest and most real connection. Throughout the course of this assignment I will begin by explaining the concept of legal personality and describe the veil of incorporation. I will give examples of when the veil of incorporation can be lifted by the courts and statuary provisions such as s.24 CA 1985 and incorporate the varying views of judges as to when the veil can be lifted.