ANÁLISIS ESTADÍSTICO

Since company laws were passed in the nineteenth century, the legal position has been that shareholders own the company and directors fiduciary duties are owed to the company for

the benefit of its shareholders.80 _{This is the dominant view of the Anglo-American corporate}

governance model which is premised on the view that shareholders are the primary risk

bearers for setting up the company and thus they are the ultimate owners. 81

Supporters of shareholder primacy argue that other stakeholders such as creditors can

hedge their risk by agreeing favourable terms in their contracts. In regards to contractual

safeguards, for example, creditors can use covenants to minimise the risk of default.82

Covenants can be distinguished between positive and negative covenants. The latter

preclude debtors from diluting the interests of creditors through activities such as

disposition of assets. Positive covenants require the debtor to maintain their position on

matters such as the legal status of the company or keeping certain executives on the

company’s board. Both covenants can constrain the debtor company through the potential

exit of the creditor upon default. Exit can be in the form of reduced or non-renewal of the

financing contract or enforcement of security instruments.

80 _{In a study on corporate governance in the nineteenth and twentieth centuries, Talbot found that: “[t]he}

historical evidence presented on the development of the market economy and company law in the United Kingdom… shows that the dispersed ownership model did not originate in economic efficiencies. Instead it was prompted by the desire to engineer the economy in the interests of the largest investors…” Lorraine Talbot, Progressive corporate governance for the 21st_{century (Oxford: Routledge, 2013) 13.}

81 _{Michael Jensen and Clifford Smith, Stockholder, Manager and Creditor Interests: Applications of Agency}

Theory, in Edward Altman and Marti Subrahmanyam, (Eds), Recent Advances in Corporate Finance, (Irwin Professional Publishing: Homewood, USA, 1985) 93-131.

82_{George Triantis and Ronald Daniels, The Role of Debt in Interactive Corporate Governance (1995), 83 (4)}

However, the costs incurred in negotiating favourable contractual terms and monitoring

debtors reduces the effectiveness of covenants.83 _{Nonetheless, the premium charged by}

creditors can to some extent mitigate those concerns. A study conducted in the 1990s

examined the relationship between bank loans and the size of premium incorporated in the

loan’s interest rate.84 _{The study found a positive relationship between the value of the}

covenants and the risk premium incorporated.85 _{The study also found that debtors are able}

to buy out financial covenants thus limiting their effectiveness.

Unlike creditors, employees are unable to individually foresee dangers such as a risky

takeover in the future, unless supported by their respective trade unions.86 _{Similarly, even if}

the risk is foreseen, they are unable to insert or bargain on corresponding terms to protect

their interests. On that basis, employees take on risk by contracting to work for the

company. But to the advantage of employees, the demise of a company still leaves them with

their labour and skill which they can sell or utilise elsewhere.

The risk bearing argument has received little support in research literature. It has been

argued that the “link between risk-taking and the right to control…is a fragile foundation

on which to base shareholder (primacy).”87 _{In other words, both shareholders and other}

company stakeholders take on risk by supplying the company or investing in the company

thus giving shareholders primacy over other stakeholders is unjustified. Even some

83_{Philipe Aghion and Patrick Bolton, An Incomplete Contracts Approach to Financial Contracting, (1992) 59 (3)}

Review of Economic Studies 473, 491.

84 _{Judy Day and Peter Taylor, Evidence on the Practices of UK Bankers in Contracting for Medium-term Debt,}

(1995) 10 (9) Journal of International Banking Law 394, 398.

85_{Ibid 398.}

86 _{Maryalice Citera and Joan Rentsch, Is There Justice in Organizational Acquisitions? The Role of Distributive and}

Procedural Fairness in Corporate Acquisitions, in Russell Cropanzano (ed), Justice in the Workplace: Approaching Fairness in Human Resources Management, (Lawrence Erlbaum Associates: Hillsdale, NJ, 1993) 211-130.

87 _{Michel Aglietta and Antoine Reberioux, Corporate Governance Adrift: A Critique of Shareholder Value,}

researchers argue that the risk assumed by shareholders when investing in the company is

similar to the risk assumed by creditors when contracting with the company.88

Similarly, shareholders have the ability to diversify their investments by holding many

portfolios.89 _{This allows them to spread the risk around and thus reduce the impact of a fall}

in the company’s share value or liquidation. In particular, institutional shareholders often

hold “literally a thousand or more stocks.”90 _{As a result, active management of the company}

is offset by the low expected return from individual portfolios. Fund managers, who are

remunerated according to the performance of the fund, manage institutional investment. As

a result, they often pursue a diversified investment policy to reduce the risk of the whole

portfolio. This offers support to the case for giving primacy to stakeholders such as

employees who are unable to spread their risk in the same manner as shareholders.

Another challenge to the risk bearing argument is that shareholders have advance

knowledge of the company’s financial state as compared to other stakeholders such as

employees.91 _{Knowledge of the company’s financial standing allows shareholders to walk}

away at any time whereas non-shareholding stakeholders cannot. A stakeholder such as an

employees’ risk is unforeseen and unknown whereas shareholders know in advance that the

company is struggling through company reports and independent audits. This separates

shareholders from non-shareholding stakeholders such as banks with unfulfilled contracts

and employees who have exchanged their labour for remuneration.

88 _{Eugene Fama and Michael Jensen, Separation of Ownership & Control, (1983) 26 (2) Journal of Law &}

Economics 301, 308.

89 _{John Coffee, Institutional Investors as Corporate Monitors: Are Takeovers Obsolete?, in John Farrar, (ed),}

Takeovers Institutional Investors and the Modernization of Corporate Laws, (Oxford University Press: Oxford,1993) 12.

90_{Ibid 82.}