In any case, the entire notion of the shareholder has to be rethought. In an age when a listed company’s share register suffers 90 percent churn each year, the very concept of “the shareholder” dissolves, corporate governance expert professor Bob Garratt told a recent meeting of the Human Capital Forum. Calling for a “cultural and behavioral transformation,” Garratt declared that the first duty of directors was not to shareholders, but to the company itself. Organizations have to move from agency theory to stewardship theory, he believes — restoring the original concept of the board’s role from the 17th century.
Ironically, from that perspective it is today’s “business as usual” that is the aberration. In a forthcoming book, The Rise and Fall of Management, Gordon Pearson shows how corporate law, including the UK’s 2006 Companies Act, takes a much more enlightened approach to governance than current practitioners want to admit.
Contrary to common assumptions, shareholders do not own companies (how could they and benefit from limited liability at the same time?), and directors owing their duty to the company can’t be “agents” of shareholders — indeed, they are charged with acting fairly between all company members. It’s a measure of how much present governance has lost its way that resurrecting such ideas should now seem so radical — and so urgently necessary.