I can not find where in the model articles for UK companies it says the responsibility of the directors is to maximise shareholder value.


Is this stated somewhere else, perhaps the Company Act 2006?


1 Answer 1


Sections 170 and 172 of the Companies Act (2006) cited in the original question, are most relevant.

Section 170(3) and (4) provides that the Companies Act (2006) restates the common law and equity case law of the United Kingdom regarding the duties of directors and should be interpreted in that fashion, rather than as effecting a substantive change in the law established by those hundreds of years of cases. This caselaw has repeatedly clarified for hundreds of years that it is the job of the directors to look out for the interests of the shareholders who collectively elect them first, before any other consideration.

Section 172(1) states that 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 to (among other matters) to . . ."

In the Companies Act (2006) the term "members" is the term used to refer to shareholders.

(For what it is worth, I think that one of many reasons for the stylistic decision to use the term "members" rather than "shareholders" in the statutory language is probably to insure that the somewhat crass and very quotable phase "maximise shareholder value" doesn't actually appear in the language of the statute.)

But, the balance of Section 172(1) qualifies the first part of the sentence set forth above by identifying considerations in addition to the short term benefit of shareholders that may also be considered. (1)(a) notes that the long term as well as the short term may be considered, (1)(b) authorizes directors to also consider the interests of employees of the company, (1)(c) authorizes directors to also consider relations with persons with whom the corporation has contracts, (1)(d) authorizes directors to consider the impact on the community and the environment, (1)(e) authorizes directors to consider the reputation of the company, and (1)(f) authorizes directors to consider what is fair when shareholders have potentially conflicting interests.

Section 172(2) states that in a public benefit corporation that has a formally stated purposes other than benefitting shareholders that this purpose rather than benefitting shareholders should control.

Section 172(3) alludes to the fact that when a company is insolvent it has a duty to elevate its duties to creditors over the duties of shareholders (i.e. "members").

Section 172(1) is really an embrace of an oxymoron. The first clause succinctly states the theory that directors have a primary duty to act in the interests of the shareholders. The second clause, however, largely adopts a different theory of what a corporation is called the "web of contracts theory" which states that corporations mediate the interests of everyone they do business with, that the shareholders are just one of those groups of constituents, and that directors should look to the interests of the entity as a whole, rather than to the interests of only one specific group of constituents, the shareholders, while deciding what to do.

Linguistically, the way that Section 172(1) reconciles these opposing theories of the purpose of a corporation which a director is to carry out is to suggest that the duties of a director to act in the best interests of "its members as a whole" (to whom the directors owe primary allegiance) is not inconsistent with considering the interests of other constituents of the company. Implicitly, this sentence construction is implying that looking out for everyone and making sure that everyone is happy is frequently a good way, in the long term, to advance the interests of "its members as a whole" by making the company more profitable since it has no enemies.

Put another way, while 172(1) says that when push comes to shove the interests of the shareholders is the primary duty of the directors to advance, that directors are urged by the statute to seriously consider that business is not a zero sum game and that fair dealing with others is ultimate a good policy for long term profitability of shareholders.

The focus on the long term in Section 172(1)(a) is the way that this approach is justified even in the face of a short term decision like whether to increase employee pay or use available funds to pay dividends to shareholders, that pits one against the other. Section 172(1)(a) says that even though paying employees more in the short run may reduce the amount of dividends that can be paid to shareholders, that winning employee loyalty might, for example, increase productivity which increases profits, which increases the long term capacity of the corporation to pay dividends to shareholders, so a short term crimp in dividend payments can still be in the best interests of shareholders in the long term.

The second clause of 172(1)(a), however, is strongly undermined by Sections 170(3) and (4), which have historically developed a case law in which, the primacy of a director's duty to shareholders has been made clear, even though the case law does not absolutely and categorically rule out the possibility that other considerations could be in the best interests of the shareholders if one looks at the situation from a broad enough perspective.

The "Model articles for private companies limited by shares" says nothing at all about the duties of directors. This document is a document that explains how directors go about accomplishing the duties that all directors of corporations have by operation of law in this particular company, not what the directors are supposed to do. It is a set of rules for running meeting and making decisions, not a set of missions and duties.

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    Companies limited by guarantee (rare but not extinct beasts) have members but no shareholders. I expect the Companies Act would have to apply to them as well. Feb 14, 2019 at 15:34

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