An assessment of the rights and influence of debtholders in corporate decision-making in light of shareholder primacy

Abstract

Within the realm of corporate governance, there is a widely-held belief that the board of directors of a company serve at the pleasure of shareholders, for the simple reason that shareholders “own” the company in question.1 While this notion of ownership has to a certain extent been discredited,23 the underlying principle remains sound – shareholders are contributors of capital, who have taken a risk through their investment in a company, and accordingly repayment of their faith shown should be at the forefront of a board of directors’ decision-making.4 This is, in essence, the premise of the “shareholder primacy” model of corporate governance, in terms of which a company’s shareholders are placed front and centre of decisions taken by a company’s board of directors with the ultimate goal of maximisation of the shareholders’ wealth.