Question

Explain the following:
. Enlightened shareholder value approach in the 2008 Companies Act

Answer 1

The enlightened shareholder value approach is a concept that was introduced in the 2008 Companies Act in the United Kingdom. It emphasizes the idea that the interests of shareholders should be considered in a broader context, taking into account the long-term sustainability of the company and its impact on society and the environment.

Under this approach, directors of a company are required to act in a way that promotes the success of the company for the benefit of its shareholders. However, this should be done while also considering the impact of the company's actions on other stakeholders, such as employees, customers, suppliers, and the environment.

The enlightened shareholder value approach recognizes that a company's success and long-term value are not solely dependent on maximizing short-term profits for shareholders. Instead, it encourages directors to think about the long-term consequences of their decisions and the potential effects on the company's reputation, relationships with stakeholders, and overall sustainability.

This approach is seen as a shift from the traditional shareholder primacy perspective, which focused primarily on maximizing profits for shareholders without much regard for other stakeholders or long-term sustainability. The enlightened shareholder value approach promotes a more balanced and socially responsible approach to corporate governance, taking into account the broader interests of stakeholders and ensuring the company's actions align with wider societal goals.