More from the Future of Private Enterprise

Here's a further chunk of text from George Goyder's book setting out a good case for revisiting company law.

The Companies Act of 1862, on which all subsequent Companies legislation is based, gave to shareholders something which does not in equity belong to them, namely the exclusive control of industry. Authority to direct industry met flow from responsibility. The Companies Act of 1862 by removing the unlimited liability of shareholders, did away with the only possible claim of the shareholder to exercise unlimited control over industry, a control which he is under no legal compulsion to share with anyone else.
Handicapped as it is by an outworn and defective legal structure, the industrial system works as well as it does only because it is administered by able men who have to make the best of the system as they find it. The director is acutely aware that the company has responsibilities to others besides the company's shareholders. But the directorate is hindered from entering into full co-operation with the worker, the consumer and the community, because its primary and sole legal obligation is to the shareholder, and the shareholder's sole concern is with the financial stability and profit-earning capacity of the undertaking. We have established in industry, by our present company law, a fundamental conflict of purpose which vitiates the exercise by the directorate of its true function of balancing the claims of the four parties to industry in the pursuit of an agreed industrial directive.

A couple of quick thoughts. First, it's noticeable that Goyder shares a lot of common ground with Tony Crosland about the lack of correspondence between company law and the reality within business. Crosland said company law was "upside down" in giving shareholders the whip hand. But whereas Goyder saw this as a serious fault to be rectified, Crosland didn't think it was worth bothering given that in practice everything was thrashed out between management and unions. With hindsight, it looks like Goyder was better on that point.  

Second, we have obviously moved a long way from the position outlined - not surprising given that this was written 60 years ago! We have been through a prolonged period where policymakers have tried to breath life into the idea that shareholders 'own' companies, on the basis that this would be in everyone's interests. It hasn't worked out that brilliantly. Latterly they have tried to sketch out shareholders' responsibilities too, on a principles and voluntary basis in initiatives like the Stewardship Code and PRI, and something slightly different in cases relating to the OECD multinationals guidelines. One might argue that this is an attempt to patch up some of the holes caused by limited liability. But, in the UK at least, so far policy has been much more timid on trying to address this directly through company law.