Governance Reforms Must Address Root Causes of Corporate Failures

It is vitally important from a public interest perspective that her reforms address not only the symptoms but also the root causes of the corporate failures that are corroding capitalism. These include the overriding legal duty of directors to promote the success of the company. This duty, which is derived from the nebulous concept of enlightened shareholder value, lacks grit, is unduly focused on shareholders and fails to provide an effective basis for legal accountability. Despite this, it is pivotal to a company’s governance and has given legal legitimacy to implementing excessive boardroom pay practices. Also, that duty is of critical importance to ensuring that genuinely long-term decisions are taken by boards of directors. As it stands, the legal duty of directors in the UK is too permissive and needs to be tightened up.

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