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The framework for board accountability in corporate governance

  • Andrew Keay (a1) and Joan Loughrey (a1)

In the wake of the financial crisis, there has been much discussion about whether boards (particularly of banks) are sufficiently accountable. However, while a significant literature has grown up in relation to the study of accountability in various disciplines, particularly public administration and politics, in the field of corporate governance there has been little consideration of what accountability means or entails. This is problematic: without a clearer idea of the elusive concept of accountability, debates about board accountability may be at cross-purposes. It will be difficult to assess whether particular corporate governance mechanisms promote board accountability, and if not, why not. The lack of clarity can also mask accountability deficits. This paper addresses this gap, setting out why accountability is important and offering an account of what accountability means in the corporate governance context, focusing on board accountability, in order to provide a framework for future research.

Corresponding author
Andrew Keay, Professor of Corporate and Commercial Law, Centre for Business Law and Practice, School of Law, University of Leeds, The Liberty Building, University of Leeds, Leeds LS2 9JT, UK. Email:
Joan Loughrey, Professor of Law, Centre for Business Law and Practice, School of Law, University of Leeds, The Liberty Building, University of Leeds, UK. Email:
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1. Department for Business Innovation and Skills and HM Treasury Making Companies More Accountable to Shareholders and the Public (updated 9 December 2013), available at (accessed 12 December 2013).

2. For instance, see Monks, R and Minnow, N Power and Accountability (New York: HarperCollins, 1991); Demirag, S Corporate Governance, Accountability and Pressure to Perform: An International Study (Stanford, CT: JAI Press, 1998); Bavly, D Corporate Governance and Accountability: What Role for the Regulator, Director and Auditor? (Westport, CT: Quorum Books, 1999); Warren, R Corporate Governance and Accountability (Liverpool: Liverpool Academic Press, 2000); Solomon, J Corporate Governance and Accountability (Chichester: John Wiley, 3rd edn, 2010).

3. For instance, see Spira, LEnterprise and accountability: striking a balance’ (2001) 39 Mgmt Decision 739 ; Pye, ACorporate boards, investors and their relationships: accounts of accountability and corporate governance in action’ (2001) 9 Corp Governance: Int'l Rev 186 ; Aguilera, RCorporate governance and director accountability: an institutional comparative perspective’ (2005) 16 Br J Mgmt S39 ; Jones, RLaw, norms and the breakdown of the board: promoting accountability in corporate governance’ (2006) 92 Iowa L Rev 105 ; Reberioux, ADoes shareholder primacy lead to a decline in managerial accountability?’ (2007) 31 Camb J Econ 507 ; Brennan, N and Solomon, JCorporate governance, accountability and mechanisms of accountability: an overview’ (2008) 21 AAAJ 885.

4. For instance, see Roberts, J, McNulty, T and Stiles, PBeyond agency conceptions of the work of the non-executive director: creating accountability in the boardroom’ (2005) 16 Br J Mgmt S5 ; Koh, P, Laplante, S and Tong, YAccountability and value enhancement roles of corporate governance’ (2007) 47 Account & Fin 305.

5. For instance, see Financial Reporting Council ‘Consultation on the revised Uk Corporate Governance Code’ (December 2009) at 17, available at (accessed 2 December 2011).

6. For instance, see Financial Reporting Council ‘Effective corporate governance’ (July 2011), available at (accessed 27 August 2013).

7. For instance, see Corporations and Markets Advisory Committee ‘Guidance for directors’ (Canberra April 2010) at 13–15, available at$file/Guidance_for_directors_Report_April2010.pdf (accessed 2 December 2011); OECD ‘Corporate governance: accountability and transparency: a guide for state ownership’ (10 February 2010).

8. For instance, see Monks and Minnow, above 2, pp 11, 12, 15, 16; Hutchison, HDirector primacy and corporate governance: shareholder voting rights captured by the accountability/authority paradigm’ (2005) 36 Loy U Chi L J 1111 at 1112; Banks, E Corporate Governance: Financial Responsibility, Controls and Ethics (Basingstoke: Palgrave Macmillan, 2004) p 22.

9. M Dubnick and K Yang ‘The pursuit of accountability: promise, problems, and prospects’ (2010) at 20, available at (accessed 19 March 2012).

10. S Demirag ‘Short termism, financial systems and corporate governance’, above 2, p 20.

11. Report of the Committee on the Financial Aspects of Corporate Governance under the chairmanship of Sir Adrian Cadbury (hereafter referred to as the Cadbury Report) (London: Gee Publishing, December 1992) at [3.2].

12. Ibid, at [3.2]–[3.4].

13. Final Report of the Committee on Corporate Governance (London: Gee Publishing, January 1998) (hereafter referred to as the Hampel Report).

14. For instance, Financial Reporting Council ‘The Uk Corporate Governance Code’ (September 2012) Main Principles Section C, available at (accessed 5 August 2013).

15. Above 13, Section D at [2.18]–[2.22].

16. European Union Internal Market Directorate General (Brussels, 2002) at 46, available at (accessed 15 March 2012).

17. For instance, see Young, AFrameworks in regulating company directors: rethinking the philosophical foundations to enhance accountability’ (2009) 30 Company Lawyer 355 at 355, 356.

18. Taylor, BFrom corporate governance to corporate entrepreneurship’ (2001) 2 J Change Mgmt 128 ; Huse, MAccountability and creating accountability: a framework for exploring behavioural perspectives of corporate governance’ (2005) 16 Br J Mgmt S65.

19. The definition originally appeared at and has been superseded by the following address: (accessed 6 October 2011).

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21. Above 11, at [6.1].

22. For example, Bottomley, S The Constitutional Corporation (Aldershot: Ashgate, 2007) p 80. In an excellent and recent book, Corporate Governance in the Shadow of the State (Oxford: Hart Publishing, 2013), Moore, Marc does endeavour to analyse the concept of accountability although the learned author does not go into detail in defining the concept. He is more concerned with seeing how it fits in corporate governance.

23. Behn, R Rethinking Democratic Accountability (Washington, DC: Brookings Institution Press, 2001) p 221 ; Sinclair, AThe chameleon of accountability: forms and discourses’ (1995) 20 Account, Org & Soc'y 219 at 221; Demirag, I, Dubnick, M and Khadaroo, MExploring the relationship between accountability and performance in the Uk's Private Finance Initiative (Pfi)7: paper presented at the ‘Conference on Governing the Corporation: Mapping the Loci of Power in Corporate Governance Design’, at Queen's University, Belfast, 20–21 September 2004 (on file with authors); Bovens, MAnalysing and assessing accountability: a conceptual framework’ (2007) 13 Eur L J 447 at 448, 449.

24. Dubnick and Yang, above 9, at 14.

25. See A Licht ‘Accountability and corporate governance’ (September 2002) at 1, available at (accessed 19 March 2012).

26. There are many mechanisms that presently exist that might be regarded as seeking to enhance accountability.

27. Above 11, at [6.1].

28. For example, see in the UK, The Companies (Tables A–F) Regulations 1985, SI 1985/805 Table A art 70 and The Companies (Model Articles) Regulations 2008, SI 2008/3229 reg 2 and Sch 1, art 5 (private companies); reg 4 and Sch 3, art 5 (public companies). In the US, see Delaware General Corporation Law §141(a) (2009) and Model Business Corporation Act §8.01 (2008).

29. John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113.

30. Bainbridge, S The New Corporate Governance (New York: Oxford University Press, 2008) p 34.

31. This paper is neutral on the contested concept of whether shareholders are owners of the company. Some contractarians, for example, reject the ownership analysis: Easterbrook, F and Fischel, Dr The Economic Structure of Corporate Law (Cambridge, MA: Harvard University Press, 1996), pp 38, 68–70. See also Kay, J and Silberston, ACorporate governance’ in Patfield, F (ed) Perspectives on Company Law Volume 2 (London: Kluwer, 1997) p 49 ; Grantham, RThe doctrinal basis of the rights of company shareholders’ (1998) 57 Camb L J 554 at 562; Ireland, PCompany law and the myth of shareholder ownership’ [1999] 62 Mod L Rev 32 ; Worthington, SShares and shareholders: property, power and entitlement’ Part 1 (2001) 22 Company Lawyer 258 and Part 2 (2001) 22 Company Lawyer 307. See also the review and critique of the literature in Donald, DcShareholder voice and its opponents’(2005) 5 J Corp L Stud 305 at 308–316.

32. Gelter, MThe dark side of shareholder influence: managerial autonomy and stakeholder orientation in comparative corporate governance’ (2009) 50 Harv Int'l L J 129 at 146.

33. Bottomley, above 22, p 68; Bainbridge, above 30, p 34.

34. Licht, above 25, at 20; Harlow, C and Rawlings, RPromoting accountability in multilevel governance: a network approach’ (2007) 13 Eur L J 542 at 547. See Scott, CAccountability in the regulatory state’ (2000) J Law & Soc'y 27 at 39: problems of accountability arise as a result of delegated authority.

35. Licht, above 25, at 3.

36. The theory was pioneered by Alchian, A and Demsetz, H in ‘Production, information costs, and economic organization’ (1972) 62 Am Econ Rev 777 and Jensen, M and Meckling, WTheory of the firm: managerial behavior, agency costs, and ownership structure’ (1976) 3 J Fin Econ 305 and employed by many scholars in various disciplines since.

37. Pilon, RCapitalism and rights: an essay toward fine tuning the moral foundations of the free society’ (1982) J Bus Ethics 29 at 31 et seq; Keay, AShareholder primacy in corporate law: can it survive? Should it survive?’ (2010) 7 Eur Company & Fin L Rev 369 at 393. Many dispute the fact that the shareholders are the owners of the company: see literature at 31 above. The following cases might be cited to support the latter view: Bligh v Brent (1837) 2 Y & C Ex 268, Salomon v Salomon and Co Ltd [1897] AC 22 and Short v Treasury Commissioners [1948] 1 KB 116.

38. As far back as 1797, Jeremy Bentham was talking in terms of managers having responsibilities to their principals: Bentham, J Pauper Management Improved: Particularly by Means of an Application of the Panopticon Principle of Construction (Young's Annals of Agriculture, 1797) pp 5152 and referred to in Gallhofer, S and Haslam, JApproaching corporate accountability: fragments from the past’ (1993) 23 Account & Bus Res 320 at 322.

39. Roberts, JTrust and control in Anglo-American systems of corporate governance: the individualizing and socializing effects of processes of accountability’ (2001) 54 Hum Rel 1547 at 1548.

40. Dooley, MTwo models of corporate governance’ (1992) 47 Bus Law 461 at 468.

41. Williamson, O Mechanisms of Governance (Oxford: Oxford University Press, 1996) p 253.

42. Licht, above 25, at 3. See also Lindenberg, SMyopic opportunism and joint production: a relational approach to corporate governance’ in Grandori, A (ed) Corporate Governance and Firm Organization (Oxford: Oxford University Press, 2004) p 212.

43. Coffee, JcNew myths and old realities: the American Law Institute faces the derivative action’ (1993) 48 Bus Law 1407 at 1425. This same view was stated by Jeremy Bentham: see Gallhofer and Haslam, above 38, at 320.

44. A Licht ‘Adaptive accountability: towards a culturally compatible model of corporate governance for East Asia’, paper delivered at the BCLBE Conference on Corporate Governance in East Asia, UC Berkeley, 4–5 May 2006, available at (accessed 14 March 2013).

45. Bavly, above 2, p 7.

46. Blair, M and Stout, LDirector accountability and the mediating role of the corporate board’ (2001) 79 Wash U L Q 403 at 440. The approach that is mentioned is often seen as the basis for stewardship theory. For a consideration of stewardship theory, see Davis, J, Schoorman, F and Donaldson, LTowards a stewardship theory of management’ (1997) 22 Acad Mgmt Rev 20.

47. Mulgan, R Holding Power to Account: Accountability in Modern Democracies (Basingstoke: Palgrave Macmillan, 2003) pp 1214 ; Curtin, D and Senden, LPublic accountability of transnational private regulation: chimera or reality?’ (2011) 38 J Law & Soc'y 163 at 169.

48. Mulgan, ibid.

49. In the corporate governance context, see Licht, above 25, at 17–22.

50. Thompson, D Restoring Responsibility: Ethics in Government, Business and Healthcare (Cambridge: Cambridge University Press, 2005) p 3.

51. Licht, above 25, at 17.

52. See Roberts, J and Scapens, RAccounting systems and systems of accountability – understanding accounting practices in their organisational contexts’ (1985) 10 Account Org & Soc'y 443 at 449, citing Giddens, A Central Problems in Social Theory (London: Macmillan, 1979) p 57.

53. Hohfeld, WFundamental legal conceptions as applied in judicial reasoning’ (1917) 26 Yale L J 710 at 756–757.

54. Agents, for example, are not necessarily more powerful than their principals: see comments of Lawton LJ in Alpha Trading Ltd v Dunnshaw-Patten Ltd [1981] QB 290, 307.

55. Roberts and Scapens, above 52.

56. March, J and Olsen, J Democratic Governance (New York: The Free Press, 1995) p 152 ; Licht, 25 above, at 17.

57. Koenig-Archibugi, MTransnational corporations and public accountability’ (2004) 39 Gov't & Opposition 235 at 236.

58. Sinclair, above 23, at 221. See Canadian Democracy and Corporate Accountability Commission ‘Canadian democracy and corporate accountability: an overview of issues’ (2001) at 10.

59. Blair and Stout, above 46, at 406.

60. Tung, FThe new death of contract: creeping corporate fiduciary duties for creditors’ (2008) 57 Emory L J 809 at 813.

61. See Companies Act 2006, s 168 (‘the Act’).

62. Bennedsen, M and Wolfenzon, DThe balance of power in closely held corporations’ (2000) 58 J Fin Econ 113 at 114.

63. Often referred to as ‘doing the Wall Street Walk’.

64. Dooley, above 40, at 525.

65. See eg S Bainbridge ‘Shareholder activism and institutional investors’ (September 2005) available at (accessed 13 April 2012); Bainbridge, SDirector primacy: the means and ends of corporate governance’ (2003) 97 Nw U L Rev 547 at 571; Cheffins, B Corporate Ownership and Control: British Business Transformed (Oxford: Oxford University Press, 2008) pp 385386.

66. Communication from the Commission to the Council and the European Parliament ‘Modernising company law and enhancing corporate governance in the European Union – a plan to move forward’ (COM 21 May 2003) 284, originally accessible at and referred to in RiskMetrics Group ‘Study on monitoring and enforcement practices in corporate governance in the Member States’ (EU, 23 September 2009) 187 at n 320, available at (accessed 27 April 2012).

67. Financial Reporting Council ‘Uk stewardship code’ (September 2012), available at (accessed 10 May 2013).

68. Koenig-Archibugi, above 57, at 236.

69. Arrow, K The Limits of Organization (New York: WW Norton, 1974) p 78.

70. ainbridge, above 30; Hutchison, above 8; Spira, above 3.

71. Hutchison, ibid, at 1116.

72. Cadbury Report, above 11, at [1.2].

73. Hampel Report, above 13, at 7. This view has continued amongst some. For example, see Taylor, above 18, at 127. This was because accountability had obscured business prosperity, although it has been said that there does not appear to be sufficient evidence to support that conclusion: Spira, above 3, at 739.

74. OECD ‘Principles of corporate governance’ (2004); OECD, above 7.

75. Fisher, EThe European Union in the age of accountability’ (2004) 24 Oxford J L Stud 495 at 500; J Black ‘Constructing and contesting legitimacy in polycentric regulatory regimes’ LSE Law, Society and Economy Working Papers 2/2008 at 24, 23, available at (27 August 2013); Moore, above 22, pp 6–7.

76. See eg Castello, I and Lozano, JSearching for new forms of legitimacy through corporate responsibility rhetoric’ (2011) 100 J Bus Ethics 11 at 19, 23, who between 2006 and 2008 traced an increase in claims by firms that they were engaging in voluntary actions and formal mechanisms to make themselves accountable, which the authors attributed to the firms seeking legitimacy.

77. Suchman, MManaging legitimacy: strategic and institutional approaches’ (1995) 20 Acad Mgmt Rev 571 at 574.

78. Ibid, at 575; Castello and Lozano, above 76, at 12.

79. Bovens, MTwo concepts of accountability: accountability as a virtue and as a mechanism’ (2010) 33 West Eur Pol 946 at 954. See also Contini, F and Mohr, RReconciling independence and accountability in judicial systems’ (2007) 3 Utrecht L Rev 26 at 28.

80. T Frankel ‘Accountability and oversight of the Internet Corporation for Assigned Names and Numbers (Icann)’, report to the Markle Foundation (7 December 2002) at 31, available at (accessed 27 August 2013).

81. Bovens, above 79, at 954.

82. Moore, above 22, p 41

83. Bottomley, above 22, p 73

84. See text to 170 below.

85. Black, above 75, at 28.

86. See Beu, D and Buckley, MThe hypothesized relationship between accountability and ethical behaviour’ (2001) 34 J Bus Ethics 57 at 63, 66; Licht, above 25, at 37; Koppell, JPathologies of accountability: Icann and the challenge of “multiple accountabilities disorder” ’ (2005) 65 Pub Admin Rev 94 at 95; Luke, BExamining accountability in state-owned enterprises’ (2010) 26 Fin Account & Mgmt 134 at 157–158; Dubnick and Yang, above 9, at 13.

87. See eg Romzek, B and Dubnick, MAccountability in the public sector: lessons from the Challenger tragedy’ (1987) 47 Pub Admin Rev 223.

88. March and Olsen, above 56, p 151 ; Jos, P and Tompkins, MThe accountability paradox in an age of reinvention: the perennial problem of preserving character and judgment’ (2004) 36 Admin & Soc'y 255 at 272.

89. Jos and Tompkins, ibid.

90. March and Olsen, above 56, p 151

91. Rappaport, AThe economics of short-term performance obsession’ (2005) 61 Fin Analysts J 65 at 65. See also M Tonello ‘Revisiting stock market short-termism’ (2006) at 8, available at (accessed 17 June 2013); Dallas, LShort-termism, the financial crisis, and corporate governance37 J Corp L 265 at 268 (2012); Millon, DShareholder social responsibility’ (2013) 36 Seattle U L Rev 911 at 911–917.

92. Although the need to develop metrics that value long-term performance is recognised: see eg Dobbs, R and Koller, TMeasuring long-term performance’ (2005) McKinsey Q 17.

93. For an overview of the different goals and methods of accountability systems, see Dubnick and Yang, above 9. See also Bovens, M, Schillemans, T and T'Hart, PDoes public accountability work? an assessment tool’ (2008) 86 Pub Admin 225 at 230–232.

94. Lerner, J and Tetlock, PAccounting for the effects of accountability’ (1999) 125 Psychol Bull 255 at 257.

95. Bamberger, KRegulation as delegation: private firms, decision-making, and accountability in the administrative state’ (2006) 56 Duke L J 377 at 418–421. On decision making biases within organisations, see also Langevoort, DOrganized illusion: a behavioral theory of why corporations mislead stock market investors (and cause other social harms)’ (1997) 146 U Pa L Rev 101 at 120–126, 131–136.

96. Mulgan, R“Accountability”: an ever expanding concept?’ (2000) 78 Pub Admin 555 at 563–566; Bovens et al, above 93, at 225.

97. Roberts et al, above 4, at S15–S19. See also Sinclair, above 23, at 233, criticising performance evaluation for having the same effect.

98. K Chansa ‘Accountability: a case study of Zsic’ (2006), referred to in ‘Accountability in corporate governance’ Economy Building (8 March 2011), available at (accessed 2 December 2011).

99. Sinclair, above 23, at 221, arguing that the more we try to define the concept, the murkier it becomes.

100. Kelsen, H Introduction to the Problems of Legal Theory, trans BL Paulson and SL Paulson (Oxford: Clarendon Press, 2002) pp 9596.

101. O'Connell, LProgram accountability as an emergent property: the role of stakeholders in a program's field’ (2005) 65 Pub Admin Rev 85 at 85.

102. Bovens, above 79, at 957.

103. Dicke, LEnsuring accountability in human services contracting: can stewardship theory fit the bill?’ (2002) 32 Am Rev Pub Admin 455 at 462; Koppell, above 86. See also literature cited in Bovens, ibid, at 950.

104. Mulgan, above 96, at 555; Bovens et al, above 93. Not everyone agrees that all the elements outlined need be present; see eg Kaler, JResponsibility, accountability and governance’ (2002) 11 Bus Ethics: Eur Rev 327 at 329–330.

105. Uhr, JRedesigning accountability: from muddles to maps’ (1993) 65 Austl Q 1 at 4.

106. Kaler, above 104, at 328.

107. Uhr, above 105.

108. Simon, H, Smithburg, D and Thompson, V Public Administration (New York: Knopf, 1950) p 513.

109. Roberts and Scapens, above 52, at 448.

110. Allen, A2003 Daniel J. Meador Lecture. Privacy isn't everything: accountability as a personal and social good’ (2003) 54 Al L Rev 1375 at 1382.

111. Mulgan, above 96, at 555; Bovens et al, above 93, at 225.

112. Bovens, above 23, at 451.

113. Behn, above 23, p 1; Kaler, above 104, at 329; Koenig-Archibugi, above 57, at 238.

114. Lerner and Tetlock, above 94, at 256.

115. Harlow and Rawlings, above 34, at 545, who do not agree that sanctions are a core aspect of accountability.

116. Kaler, above 104, at 329–330. He sees the attribution of blame as a weaker version of coercive accountability and punishment as the stronger version: ibid, at 330.

117. Mulgan, above 47, p 193

118. Romzek and Dubnick, above 87, at 229.

119. Romzek and Dubnick, ibid, at 228–229; Contini and Mohr, above 79, at 30.

120. Jos and Tompkins, above 88, at 257.

121. Ibid, at 259. Terminology varies – for example, Sinclair defines performance-based accountability as managerial accountability which she distinguishes from administrative accountability, which is concerned with monitoring processes: Sinclair, above 23, at 227.

122. March and Olsen, above 56, pp 154–155.

123. Scott, above 34, at 42.

124. Mulgan, above 47, pp 27–28.

125. Scott, above 34, at 42, 48–49.

126. Mashaw, JAccountability and institutional design: some thoughts on the grammar of governance’ in Dowdle, M (ed), Public Accountability: Designs, Dilemmas and Experience (Cambridge: Cambridge University Press, 2006) pp 115, 122. See also Scott, above 34, at 49.

127. Mulgan, RContracting out and accountability’ (1997) 56 Austl J Pub Admin 106, 115. See also Black, above 75, at fn 103.

128. O'Loughlin, MWhat is bureaucratic accountability and how can we measure it?’ (1990) 22 Admin & Soc 275 at 283.

129. Mulgan, above 96, at 567.

130. Mashaw, above 126, p 123

131. Mulgan, above 47, p 21. However, Mashaw argues that mechanisms that Mulgan would recognise as accountability mechanism may in practice operate very much like market mechanisms, where control is exercised through influence rather than a formal calling to account: Mashaw, ibid, p 124

132. Ibid, p 122

133. Freeman, JThe private role in public governance’ (2000) 75 NYU L Rev 543 at 664–665.

134. As argued by Frankel, above 80, at 32.

135. Mashaw, above 126, p 132

136. Bovens, above 23, at 453; see also Mulgan, above 47, pp 19–20.

137. Frankel, above 80, at 32–35.

138. For example, Koppell lists transparency and exposure to liability as essential components of accountability, but not explicitly the obligation to provide an account: Koppell, above 86, at 96–97.

139. Bottomley, above 22, p 69

140. See eg Blair and Stout, above 46 (discussing to whom and how directors should be accountable; Bainbridge ‘Director primacy’, above 65, at 603 (discussing accountability to shareholders and accountability ‘mechanisms’); Jones, above 3 (discussing liability rules as a means of promoting accountability).

141. See eg Hansmann, H and Kraakman, RThe end of history for corporate law’ (2001) 89 Geo L J 439 ; Bainbridge, ibid, at 563; Armour, J, Deakin, S and Konzelmann, S, ‘Shareholder primacy and the trajectory of Uk corporate governance’, (2003) 41 Br J Indust Rel 531 at 531–532, although the learned authors argue that outside the core institutions of English corporate law there is scope for stakeholder voices. See also D Walker A Review of Corporate Governance in Uk Banks and Other Financial Industry Entities (26 November 2009) at Annex 3, p 137, available at <> (accessed 10 March 2014).

142. Company Law Review ‘Modern company law for a competitive economy: strategic framework’ (DTI 1999) at [5.1.19]. The Review Group was established by the DTI to examine UK company law and formulate principles for its reform. For a discussion of enlightened shareholder value, see Keay, A Enlightened Shareholder Value and Corporate Governance (Oxford: Routledge, 2013). This book argues that s 172(1) effectively enshrines a form of shareholder value in UK law. The form of shareholder value is one that accepts that in acting in the best interests of the shareholders, it is necessary for directors to take into account the interests of stakeholders. See also Hannigan, BBoard failures in the financial crisis: tinkering with codes and the need for wider corporate governance reforms: part 2’ (2012) Company Lawyer 35 at 39–40.

143. Reberioux, above 3, at 509.

144. Parkinson, J Corporate Power and Responsibility (Oxford: Oxford University Press, 1994) and quoted in Solomon, J Corporate Governance and Accountability (Chichester: John Wiley, 2nd edn, 2007) p 13.

145. Above 11, at [3.2], [3.3], [3.4]. Many commentators, principally those adhering to agency theory and/or shareholder primacy, refer to the shareholders as owners of companies: eg Hessen, RA new concept of corporations: a contractual and private property model’ (1979) 30 Hastings L J 1327 at 1330; Steinberg, EThe responsible shareholder’ (1992) 1 Bus Ethics: Eur Rev 192 at 192; van der Weide, MAgainst fiduciary duties to corporate stakeholders’ (1996) 21 Del J Corp L 27 at 77). But many others would disagree – see literature above at 31 – and some would point to cases such as Bligh v Brent (1837) 2 Y & C Ex 268, Salomon v Salomon and Co Ltd [1897] AC 22 and Short v Treasury Commissioners [1948] 1 KB 116 in support.

146. The Committee on Corporate Law ‘Other constituency statutes: potential for confusion’ (1990) 45 Bus Law 2253 at 2269; Keay, above 37, at 383, 385.

147. Sternberg, EThe defects of stakeholder theory’ (1997) 5 Corp Gov 3 at 5.

148. See text above to 86 and following.

149. See eg Smith, DgThe shareholder primacy norm’ (1998) 23 J Corp L 277 ; Blair and Stout, above 46; Stout, LBad and not-so-bad arguments for shareholder primacy’ (2002) 75 S Cal L Rev 1189 ; Ireland, PShareholder primacy and the distribution of wealth’ (2005) 68 Mod L Rev 49 ; Keay, above 37.

150. See eg Institute of Directors in Southern Africa ‘King Code of Governance for South Africa 2009, Code of Governance Principles’, which requires accountability to stakeholders, available at (accessed 23 December 2013).

151. Licht, above 25, at 29.

152. Gorga, E and Halberstam, MKnowledge inputs, legal institutions, and firm structure’ (2007) 101 Nw U L Rev 1123 ; Siebecker, MTrust & transparency: promoting efficient corporate disclosure through fiduciary-based discourse’ (2009) 87 Wash U L Rev 115 at 117; E Gorga and M Halberstam ‘Litigation discovery and corporate governance: the missing story about the “genius of American corporate law” ’ (28 March 2013), available at (accessed 1 May 2013).

153. FRC, above 14, C.3.8.

154. Generally regarded as part of the accountability process: Koh et al, above 4. Financial reporting has been regarded this way for many years, and certainly since the time of Jeremy Bentham in the early nineteenth century: Gallhofer and Haslam, above 38, at 321–322.

155. Required by the Act, s 416.

156. This effectively replaced the Business Review from 1 October 2013: The Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013, SI 2013/1970.

157. The Act, s 414C(1).

158. Query whether this actually occurs. Empirical studies suggested that the Business Review often gave little away – P Taylor ‘Enlightened shareholder value and the Companies Act 2006’, PhD thesis (Birkbeck College, University of London, 2010) at 186; Aiyegbayo, O and Villiers, CThe Enhanced Business Review: has it made corporate governance more effective?’ [2011] J Bus L 699 at 715–716 – and the same shortcoming might well be innate in the Strategic Report.

159. The Act, s 414C(2).

160. The Act, s 414C(7).

161. B Hermalin and M Weisbach ‘Transparency and corporate governance’ (21 January 2007) at 1, available at (accessed 1 May 2013).

162. Department of Business, Innovation and Skills ‘Corporate governance’, available at (accessed 29 April 2013).

163. Hampel Report, above 13, at [1.2]; Roberts, JNo one is perfect: the limits of transparency and an ethic for “intelligent” accountability’ (2009) 34 Account Org & Soc'y 957 at 966.

164. Licht, above 25, at 29; Sarra, JNew governance, old norms and the potential for corporate governance reform’ (2011) 33 Law & Pol'y 576 at 576.

165. Above 11, at [3.4].

166. Ibid, at [5.2].

167. FRC, above 14.

168. Wearing two hats: the conflicting control and management roles of non-executive directors’ in Keasey, K, Thompson, S and Wright, M (eds) Corporate Governance: Economic, Management and Financial Issues (Oxford: Oxford University Press, 1997) p 56.

169. FRC, above 14, at [B.2.4].

170. Roberts, above 163, at 957.

171. AccountAbility ‘Aa1000 framework standards for social and ethical accounting, auditing and reporting’ (November 1999) at 8, available at (accessed 27 August 2013).

172. The Act, s 414B.

173. Aiyegbayo and Villiers, above 158, at 705.

174. See Keay, above 142, p 157 as far as the precursor to the Strategic Report, the Business Review, was concerned.

175. Zadek, SBalancing performance, ethics and accountability’ (1998) 17 J Bus Ethics 1421 at 1428.

176. Bamberger, above 95, at 407.

177. N Goodway ‘Activist shareholder Knight Vinke urges Ubs to split up investment bank’ The Independent 3 May 2013.

178. Kaler, above 104, at 330. Kaler sees punishment as the step after the attribution of blame, and it is to that matter we refer next.

179. See eg Short, H and Keasey, KInstitutional shareholders and corporate governance in the United Kingdom’ in Keasey et al, above 168, p 32 ; Black, B and Coffee, JHail Brittania? Institutional investor behavior under limited regulation’ (1994) 92 Mich L R 1999 ; Keay, ACompany directors behaving poorly: disciplinary options for shareholders’ [2007] J Bus L 656 ; McCahery, J, Sautner, Z and Starks, LBehind the scenes: the corporate governance preferences of institutional investors’ (December 2010), available at (accessed 29 April 2012).

180. Under Pt 11 of the Act. These actions are brought by shareholders effectively on behalf of the company and against directors and others.

181. See text to 137 above.

182. For example, the need to obtain a shareholder vote on remuneration policy: the Act, ss 439A and 226B.

183. Bamberger, above 95, at 393.

184. Bovens above 23, at 450; Bovens et al, above 93, at 234.

185. Bavly above 2, p 8.

186. See eg Blair, M and Stout, LTrust, trustworthiness, and the behavioral foundations of corporate law’ (2001) 149 U Pa L Rev 1735 at 1789–1798; Eisenberg, MThe divergence of standards of conduct from standards of review in corporate law62 Fordham L Rev 437 ; Rock, E and Wachter, MIslands of conscious power; law norms and the self-governing corporation’ (2001) 149 U Pa L Rev 1619 at 1658–1659; Manning, BThe business judgment rule and the director's duty of attention: time for reality’ (1984) 39 Bus Law 1477 at 1481–1485, 1490–1492.

187. Several commentators argue that the possibility of sanctions is an element of accountability. For instance, Bovens, above 23, at 451; Strom, KParliamentary democracy and delegation’ in Strom, K, Müller, W and Bergman, T (eds) Delegation and Accountability in Parliamentary Democracies (Oxford: Oxford University Press, 2003) p 62 ; Mulgan, above 47, at 9; Bovens et al, above 93, at 234.

188. Licht, above 25, 5, at 29.

189. Thompson, above 50, p 3. Jones agrees with this in the context of corporate governance: above 3, at 146.

190. Referred to in Aguilera, R and Cuervo-Cazurra, ACodes of good governance worldwide: what is the trigger?’ (2004) 25 Org Stud 415 at 418.

191. The provision gives the shareholders the right, by way of the passing of an ordinary resolution, to remove a director from office. It is employed rarely.

192. R Lindsay ‘Shell freezes top directors' pay after revolt’, The times 16 February 2010.

193. N Clark ‘Executive pay triggers revolt at William Hill’ The Independent 13 May 2011.

194. Lindsay, above 192.

195. G Spanier ‘Wpp's Martin Sorrell pockets £17m despite pay cut’ The Independent 1 May 2013.

196. The Act, s 263(2)(c) (for England and Wales, and Northern Ireland); s 268(1)(c) (for Scotland).

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Legal Studies
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