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Exploring the Theoretical Basis for Stakeholder Protection in Corporate Governance

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Opportunities and Pitfalls of Corporate Social Responsibility

Part of the book series: CSR, Sustainability, Ethics & Governance ((CSEG))

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Abstract

The paper seeks theoretical justification for the protection of company ’s stakeholders under the general corporate law. This ordinarily raises the issue of corporate governance bordering on the questions as to whose interests a corporate entity should be run, and what the best interests of the company , presently entrenched in the company ’s statute, entails. Finding answers to these questions demands the exploration of the corporate law theories that exert influences on the different models of corporate governance . The paper concludes that the important roles of the stakeholders to the success and sustainability of the corporate enterprise strongly justify their inclusion and the consideration of their interests at the same level as those of the shareholders under the corporate law.

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Notes

  1. 1.

    Nwafor (2013, 297–298).

  2. 2.

    See ss 170(3) & 172(1) of the UK Companies Act 2006, s 76(3)(1)(b) of the South African Companies Act 71 of 2008.

  3. 3.

    French, Mayson, and Ryan (2016).

  4. 4.

    Ibid.

  5. 5.

    See s 19(1) SA Companies Act 2008, s 15(1) UK Companies Act 2006.

  6. 6.

    [1897] AC 22.

  7. 7.

    Ibid., pp. 30–31.

  8. 8.

    Ibid., p. 51.

  9. 9.

    Dignam and Lowry (2016, p. 21) observed that it is his ownership and control of the business that causes the challenge to the validity of the formation of the company and the Court of Appeal to find Mr. Salomon liable.

  10. 10.

    See Broderip v Salomon [1895] 2 Ch 323 (CA).

  11. 11.

    Saloman v A Saloman & Co Ltd [1897] AC 22 pp. 30–31.

  12. 12.

    See Trustees of Dartmouth College v Woodward (1819) 17 US (4 Wheat) 518 per Marshall CJ p. 636.

  13. 13.

    For discussion on piercing of the corporate veil, see Nwafor (2015).

  14. 14.

    [1969] 1 WLR 1241 at 1254, [1969] 3 All ER 855 at 861.

  15. 15.

    [2013] UKSC 34 para 16.

  16. 16.

    [1985] BCLC 333(CA) at 337–338.

  17. 17.

    [1991] 1 All ER 929 at 1019.

  18. 18.

    See Ben Hashem v Ali Shayif [2008] EWHC 2380 per Munby J para 160, Yukong Line Ltd of Korea v Rensburg Investments Corporation of Liberia (No. 2) [1998] 1 WLR 294 at 305, Trustor AB v Smallbone (No. 2) [2001] 1 WLR 1177 para 21, Linsen International Ltd v Humpuss Sea Transport Pty Ltd [2011] EWHC 2339 (Comm) para 15.

  19. 19.

    In Adams’ case for instance, the Court of Appeal specifically stated that they will not attempt a comprehensive definition of those principles.

  20. 20.

    See Ben Hashem v Ali Shayif [2008] EWHC 2380 per Munby J para 160, Yukong Line Ltd of Korea v Rensburg Investments Corporation of Liberia (No. 2) [1998] 1 WLR 294 at 305, Trustor AB v Smallbone (No. 2) [2001] 1 WLR 1177 para 21, Linsen International Ltd v Humpuss Sea Transport Pty Ltd [2011] EWHC 2339 (Comm) para 15.

  21. 21.

    [2013] 2 All SA 437 (WCC) para 28.

  22. 22.

    [2002] 2 All SA 211 (A) para 20.

  23. 23.

    See s 20(9).

  24. 24.

    For detailed discussion see Nwafor above note 12.

  25. 25.

    (1867) LR 2 HL 325 at 357.

  26. 26.

    [1989] Ch 72 at 176.

  27. 27.

    Mayson, French & Ryan on Company Law 33rd ed (2016), pp. 54–55.

  28. 28.

    The Limited Liability Act of 1855.

  29. 29.

    Mayson, French & Ryan on Company Law 33rd ed (2016), p. 55.

  30. 30.

    Ibid.

  31. 31.

    The Joint Stock Companies Act of 1856 reduced the minimum number of members to seven. The extant Companies Act in both the UK and South Africa have now reduced the minimum number to one. See s 7(1) of the UK Companies Act of 2006 and s 13(1) of the South African Companies Act of 2008.

  32. 32.

    See Davies, Worthington, and Micheler (2016).

  33. 33.

    Dignam and Lowry (2016, p. 47).

  34. 34.

    Gower’s Principles of Modern Company Law 10th ed (2016), p. 34.

  35. 35.

    Ibid.

  36. 36.

    See ss 22 and 214 of the SA Companies Act 2008, s 214 UK Insolvency Act 1986. For detailed discussion of such provisions, see Nwafor (2013, p. 297).

  37. 37.

    Zingales (2000), quoted by Dignam and Lowry (2016, p. 389).

  38. 38.

    See Keay (2003).

  39. 39.

    Butler (1989).

  40. 40.

    Mayson, French & Ryan on Company Law 33rd ed (2016), p. 156.

  41. 41.

    Dine (2000, 1–8).

  42. 42.

    Ibid., p. 3.

  43. 43.

    Cheffins (1997).

  44. 44.

    Jensen and Meckling (1976).

  45. 45.

    Dine (2000, p. 8).

  46. 46.

    See Dignam and Lowry (2016, p. 383).

  47. 47.

    Berle and Means (1932).

  48. 48.

    Rathenau (1921).

  49. 49.

    Mayson, French & Ryan on Company Law 33rd ed (2016), p. 152.

  50. 50.

    See Dignam and Lowry (2016, p. 384).

  51. 51.

    Ibid.

  52. 52.

    Mayson, French & Ryan on Company Law 33rd ed (2016), p. 153.

  53. 53.

    See Dodd (1932), Berle (1931).

  54. 54.

    Mayson, French & Ryan on Company Law 33rd ed (2016), p. 155.

  55. 55.

    As under the South African Law, see s 13 of the Companies Act of 2008.

  56. 56.

    [1991] 2 AC 114 at 160.

  57. 57.

    See BCE Inc v 1976 Debentureholders 2008 SCC 69 (CanLII), [2008] 3 SCR 560 paras 39 and 40, Peoples Department Stores Inc. (Trustee of) v Wise, [2004] 3 S.C.R. 461, 2004 SCC (Canlii) para 42, Hutton v West Cork Rly Co (1883) 23 Ch D 654 at 673 (CA)., Hampson v Price’s Patent Candle Co (1876) 45 LJ Ch 437 (CA), A P Smith Manufacturing Co v Ruth F Barlow 26 NJ Super 106 (1953) 97 A 2d 186. Section 172(1) UK Companies Act 2006, Section 122(1) Canada Business Corporations Act 1985, Section 76(3) SA Companies Act 2008.

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Author information

Authors and Affiliations

  1. School of Law, University of Venda, Thohoyandou, South Africa

    Anthony O. Nwafor & Mandhlaenkosi Sibanda

Authors
  1. Anthony O. Nwafor
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  2. Mandhlaenkosi Sibanda
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Correspondence to Anthony O. Nwafor .

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Editors and Affiliations

  1. Durban University of Technology , Durban, South Africa

    Shame Mugova

  2. Merakey, Philadelphia, PA, USA

    Paul R. Sachs

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Nwafor, A.O., Sibanda, M. (2019). Exploring the Theoretical Basis for Stakeholder Protection in Corporate Governance. In: Mugova, S., Sachs, P. (eds) Opportunities and Pitfalls of Corporate Social Responsibility. CSR, Sustainability, Ethics & Governance. Springer, Cham. https://doi.org/10.1007/978-3-030-17102-5_3

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