Like all things in life, the way we do business evolves, our roles change, we innovate and we transform constantly, sometimes without even realizing it.
For more than a century company law was based on the “traditional shareholder-orientated model”.
In terms of this model a company existed merely for creating value for shareholders, nothing more and nothing less.
The practical importance with this model was that directors only had to determine what was in the best interests of the shareholders of a company when making decisions.
This approach was reconsidered in developing the Companies Act of 2008 (“the New Companies Act”).
In developing the New Companies the “pluralist approach” was considered. The “pluralist approach” focuses on all the stakeholders of the company such as its employees, creditors, shareholders and even the community in which it operates.
This approach is a vast departure from the “traditional shareholder-orientated model”.
Had this approach been adopted in terms of the New Companies Act this would have turned our company law on its head
and directors would have been obliged to take all stakeholders into account when making decisions.
This practically would have been very problematic as in most instances the stakeholders of a company have competing interests, for example shareholders may wish to close down uneconomical business units however such closure may result in job losses.
Fortunately it was eventually decided that “enlightened shareholder approach” would be followed for the purposes of our New Companies Act.
The “enlightened shareholders approach” aims to strikes a balance between its two alternatives (namely the “traditional shareholder-orientated model” and the “pluralist approach”).
In terms of the “enlightened shareholders approach” the phrase “acting in the best interest of the company” implies that the interests of the shareholders must be taken into account and thereafter the interests of other stakeholders such as employees and the community must be taken into account.
The “enlightened shareholders approach” is evident in section 20(4) of the New Companies Act which provides that shareholders, directors, prescribed officers or trade unions representing employees may take proceedings to restrain a company from doing anything inconsistent with the New Companies Act.
In conclusion, the “enlightened shareholders approach” is theoretically necessary in order to alleviate the undue inequalities of the past; however, one must take caution to not deviate too far from the previous “traditional shareholder-orientated model”.
Should we stray too far, we may find ourselves in a situation where business may be “hamstrung” from conducting business due to irreconcilable differences regarding competing stakeholders interests.