MISTAKEN IDEAS OF SHAREHOLDER OWNERSHIP AND SHAREHOLDER VALUE

Part I - Shareholders wrongly believed to be the owners of companies

Many believe that shareholders own the companies in which they hold shares. This is wrong, as pointed out by Professor John Kay, Financial Times columnist and the author of the UK Government-mandated landmark study, The Kay review of UK equity markets and long-term decision making.

Kay cites eminent authorities in the UK and the US in asserting that the belief does not correspond to the law. This mistaken notion of ownership has serious implications for corporate governance, the demand for more shareholder engagement and the focus on shareholder value.

Shareholders have more rights with respect to companies in the UK than they do in the US, but these rights still do not amount to ownership. A 1948 declaration by the UK’s Court of Appeal clearly stated that “shareholders are not, in the eyes of the law, part owners of the company”, a ruling reiterated unambiguously by the House of Lords in 2003.

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IMR Magazine November 2016


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