Introductions
In corporate law literature, the conventional wisdom on equity investment has been one of passive activity with essentially instrumental value. This conceptualisation has supported stakeholder welfarism changes and helped to justify shareholder paternalism in present UK legislation. This presumption is called into question, though, by new data on the tastes, drive, and behaviour of modern individual investors. Equity ownership is increasingly seen by many investors today as a choice that reflects their personality, identity, and moral agency, thereby generating intrinsic value beyond only financial rewards. Drawing on Friedrich Hayek’s epistemology, this paper suggests a fresh understanding of corporation law grounded in a revisionist view of John Rawls’s theory of justice. It makes the case that the list of fundamental rights safeguarded under Rawls’s first principle of justice has to include freedom to own productive property, including the capacity to invest in and shape organisations. This viewpoint has revolutionary effects on company law since it drastically limits the range of possibilities for both welfare intervention to benefit other stakeholders and paternalistic intervention aiming at maximising shareholder profit.
Rising Investor Personhood: An Interpretive Guide
Corporate legal theory’s long-dominant image of the passive, profit-seeking investor cannot stand strong examination. Growing numbers of investors—especially younger ones—who see equity ownership as a vehicle for expressing their individuality, moral values, and agency abound. These people give their freedom to make financial decisions inherent, not only instrumental, worth.
Several research point to diversification in investor tastes about size of shareholdings, time perspectives, and age. Increasing numbers of investors are driven in part by a desire to influence corporate behaviour rather than by only financial returns. For example, 68% of UK savers wish those handling their assets to take people and the environment into account. Other developed market countries also show similar patterns.
This is not only a habit of thinking about non-financial factors as a stand-in for long-term viability. According to a recent US poll, the median responder is happy to lose 2.5% of annual return given the sustainable investment choice. While younger investors often more eager to give sustainability top priority, the degree of profit sacrifice that individual investors are ready to pay for in favour of ESG considerations varies among generations.
Concurrently, investment management clearly shows a more active approach as trend. While most investment still flows through convoluted channels of intermediation, retail investors have often been able to affect firms’ share prices by group activities supported by social media and other internet platforms. For investors who value independently handling their financial and non-financial interests, the opportunity to actively manage their investments and exercise voting rights is becoming ever more crucial.
Corporate Law Revisedist Rawlsian Theory
The paper suggests a fresh reading of Rawls’s theory of justice by arguing that the list of fundamental liberties safeguarded under Rawls’s first principle of justice has to include freedom to possess productive property. Inspired by Hayek’s epistemology, which emphasises the limits of human knowledge and the consequent worth of personal freedom and experimentation, this view emphasises
In Rawls’s theory, the Hayekian defence of liberty breaks the linkage between property-owning democracy and liberal socialism, in favour of the former, the authors contend. Once the issue of the general structure of socio-economic institutions has been resolved in favour of private ownership of productive land, some abstract basic liberties take more concrete expression. In this regard, the abstract liberty to engage in economic life crystallises as the liberty to invest in businesses as a tool to build individual moral agency.
This reading suggests that the participants in the Rawlsian hypothetical bargain would reject institutions that essentially set a limit on the income or wealth a person is allowed to possess. Simultaneously, they would probably choose institutions like a universal basic income or negative income tax that would ensure everyone a fair quality of living and thereby eliminate relative poverty and make paid labour voluntary.
Connotations for Corporate Law
Corporate law is substantially affected by the revisionist Rawlsian paradigm suggested in this paper. Under the first Rawlsian principle of justice, it implies that the fundamental liberty of investors to decide the direction of their investment and to select from an unbounded range of options must be ingrained as such.
This does not imply that one is totally free to invest. Though any restrictions should result in maximum absolute liberty, it can be curtailed to honour the liberties of others. The right of the state to tax investment income and capital gains does not vanish with the freedom to invest. However, it does indicate that any paternalistic mandated regulations of corporate law restricting the available governance structures in corporations are inconsistent with the freedom to invest and unacceptable unless they reflect ideals that all rational investors would want.
Based on this liberal principle, the paper contends that many current statutory corporate law laws in the UK—especially those pertaining to publicly traded companies—are too paternalistic and hence illegal. Rules requiring one share one vote, requiring shareholder permission for specific transactions, and enforcing binding votes on directors’ remuneration plans all limit the flexibility of investors to choose from an unbounded range of possibilities.
The writers argue for broad deregulation of publicly traded corporations, therefore supporting a revision of the Companies Act, Listing Rules, and Takeover Code. They suggest that default rules, which allow new businesses joining the market to opt out from them before they issue their shares to the public, can rightfully be enforced as norms believed to be favourable for most investors in most situations. This would enable investors to choose among companies with a greater spectrum of governance systems, therefore enabling them to have more future alternatives.
Managing conflicting Stakeholder and Owner Interests: Shareholder
The paper notes that every stakeholder exhibits personality and enjoys fundamental rights. On the other hand, it contends that limiting how businesses are run or what rights shareholders could have as preventative steps to lower the possibility of corporate transgressions of others goes a bit too much. Assuming appropriate criminal, tortious, and regulatory norms forbidding such harmful behaviour, the authors argue that being allowed to participate in companies with a diversity of corporate governance arrangements does not directly injure any other parties.
The writers completely agree on the requirement of efficient application of tort law, criminal law, and regulatory norms both on businesses and individual decision-makers inside enterprises. In the framework of corporate torts, they advocate arguments in support of limiting shareholder liability—including parent company liability. They also acknowledge the validity of laws imposing reasonable ex-ante restrictions on the behaviour of enterprises to lower the risk of damages, such environmental protection laws and health and safety requirements.
They reject, meantime, claims for a stakeholder orientation of businesses and corporate law grounded on simple egalitarian values. Investors in a property-owning democracy version of the Rawlsian fair society are not morally obligated to raise the financial wellbeing of workers or consumers since profit-seeking by investors could be considered as essential to maximise the welfare of the least well-off. Taxes, social welfare programs, and public service delivery help to solve issues of income and wealth disparity.
Facilitating Individual Investor Voice
Although the freedom of investors to select among several investments and to express their values does not immediately result in a binding obligation on the part of intermediaries to offer particular options, the authors advocate a limited range of mandatory rules and non-binding guidance to enable ultimate investors to express their values.
They propose mandatory disclosure obligations placed on intermediaries combined with comply or explain guidance requiring (i) the facilitation of exercise of voting rights by retail investors, (ii) that asset owners gauge ultimate beneficiaries’ preferences, and (iii) that split voting is implemented at both asset manager and asset owner level.
The writers endorse projects aiming at the increased facilitation and complete digitisation of share ownership as well as the implementation of a responsibility for financial advisers to incorporate, on a “comply or explain” basis, individual sustainability preferences into their investment advice. They also support the implementation of a “comply or explain” obligation on asset managers thereby enabling asset owners—including pension funds—to indicate voting preferences.
Moreover, they advise all asset owners to consider consulting eventual beneficiaries on issues connected to their investment. They advocate the implementation of a soft obligation covering all monies to institutionalise the acceptance of personal preferences, with funds selected to fit their mode of operation to evaluate personal preferences.
In summary,
The paper comes to the conclusion that under corporation law, the implicit acceptance of investment instrumentality has prevented basic liberty discussions. But this has revolutionary effects for company law as investment decisions and the exercise of voting rights progressively have intrinsic worth for individuals. While totally supporting fair redistribution of corporate wealth via taxation, the authors reject pleas for coercive corporate law reform leading to the curtailment of shareholder rights and robust ex-ante and ex-post regulation of corporate behaviour by other areas of law to prevent and punish damages caused to third parties.
They support a set of changes that would empower end investors to exercise their voting rights and express values and have more say on the creation of their own rights. Presenting investor personhood as its fundamental normative value, this vision of corporation law is more likely than aspirations of continuous nation-state cooperation to offer answers for world problems.
In line with every investor’s identity, life projects, and moral convictions, the authors’ fresh conception of investor personhood emphasises the inherent significance of free choice for individual investors. Re-personalizing people’s interaction with their investing decisions calls for a broad legal spectrum that lets investors develop and grow with a constantly changing and diversified intellectual posture. Although it is yet unknown if most investors will finally use their moral agency to help the environment and society, the authors present data indicating this is a quite likely result in the medium run.
Author Bio
