Revisiting the legal basis of shareholder primacy

  • To what extent is the shareholder primacy norm still relevant in Australian company law in 2019?
  • Recent case law recognises that the interests of shareholders are distinct from the interests of the company, and that these interests will often overlap, but that does not make them the same.
  • Is law reform needed to address rising community concerns about the standard of corporate conduct in Australia?

Multiple hands reaching up for money symbols

The duties and responsibilities of company officers have been highly topical in recent times, with a number of corporate scandals and seemingly widespread contraventions of financial laws that have outraged the community, the media and our politicians and called into question whether companies and their boards are putting profits above all else, even the law.

Indeed, a variety of events have contributed to an ongoing battle over the direction of corporate cultures inside Australian companies.1 The APRA report into the Commonwealth Bank has, rightly, generated considerable debate within Australia’s boardrooms about the risks of devoting too much attention to achieving financial goals and managing financial risk at the expense of stakeholder management and managing non-financial risks.2

The Final Report of the Banking and Financial Services Royal Commission has highlighted seemingly widespread conduct, from both large and small businesses, that has fallen well below community expectations. The commission’s final report, released on 1 February 2019, puts much of the blame on greed, both at the individual and institutional level.3 Many of the companies involved have been consistently successful in generating high returns for shareholders and have performed strongly on the stock market over a long period. Greed, it seems, is no longer good, or at least not good enough.4 Making consistently high returns for shareholders is no longer enough, if indeed that ever was enough, to satisfy directors’ legal duties owed to their companies.

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