View/Open - Research Commons - The University of Waikato

The theory is based on the premise that shareholders are vulnerable compared to
other parties in the company. Creditors for example, can safeguard their interests by
adjusting interest rates according to the risks involved, while employees 38 can
negotiate terms in their favour in the contracts of employment. 39 Maximising
shareholders‟ wealth would encourage efficient allocation of resources and avoid
wastage. By concentrating on the interests of one particular group in the company,
directors would be able to discharge their duty effectively and it would be easier for
the courts to monitor and review management conduct. 40 Other stakeholders would
eventually benefit from this principle because maximising the profits of the company
would result in the company‟s financial stability. 41 It reduces the risks of creditors
not being paid; employees will benefit from the continuing operations and this will
inevitably benefit the community as well as the economy as a whole. 42
The law has provided that creditors‟ interests override those of shareholders when
the company is insolvent 43 and there are other provisions which are intended to
protect creditors under insolvency law 44 and under the law of distribution. However,
these laws do not provide any direct access for creditors to take part in the
38 See See Katherine van Wezel Stone “Policing Employment Contracts within Nexus-of-Contracts
Firm” (1993) 43 Uni. Toronto LJ 353. The writer challenged the theory that have employees an
ability to protect themselves through contracts; see also Jeffrey G. MacIntosh “Designing an
Efficient Fiduciary Law” (1993) 43 Uni. Toronto LJ 425.
39 Ibid.
40 Keay “Ascertaining the Corporate Objective : an Entity Model and Sustainability Model” (2008)
71 MLR 663 at 668-669 [„Corporate Objective”].
41 Ibid, at 669.
42 Ibid; see also Andrew Keay “Enlightened Shareholder value, the reform of the duties of company
directors and corporate objectives” (2006) LMCLQ 335.
43 Walker v Wimborne & Ors (1976) 137 CLR 1; Kinsela v Russell Kinsela Pty Ltd (in liq) (1986) 4
NSWLR 722; see also chapter 5.
44 For examples of provisions relating to antecedent transaction in the statute- see Chapter 11 of the
thesis.
126