1.   
Possible
solutions

 

a.   
Enlightened
shareholder value

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As we could see in chapter 3 of this paper it would erroneous to state
that the legislators are completely unaware of the problems created by the
shareholder primacy approach. However, the provided so far responses show a
lack of either the ability or willingness to genuinely tackle the issue. The
introduction of the enlightened shareholder value was followed by heavy
criticism1.
The interests that are supposed to enhance the quality of corporate governance –
basically CA S172 – have been defined within the ideological framework of
shareholder primacy and only as secondary to it. Furthermore, the
non-exhaustive list includes interests that could easily collide and there is
no guidance how to prioritise if such collusion happens.

 

In the new Government response to the green paper consultation regarding
corporate governance reform2
the British government maps out a plan for action which mainly focuses on increasing
the shareholder democracy and transparency within the reports. This can hardly be
described as anything else than a slight fine-tuning of the already existing
system.

 

b.   
Performance-based
remuneration

Bebchuk and Fried presented performance-based remuneration as the
desirable way of allocating executive compensation and the managerial power
approach as the way of separation the pays from the results.3
Although the shareholders` desire to align their interests with those of their
agents is understandable, today it seems unequivocal that performance-based
remuneration is one of the key reasons for short-terminism and excessive
risk-taking.

 

c.   
Shareholder
democracy

 

 

d.   
Distributive
justice

 

 

e.   
Variable pay cap

 

 

 

2.   
Conclusion

As we could see in previous chapters both the academia and the current
hard and soft law regulations are trying to solve the problem of remuneration
by introducing ideas behind quantification of executive compensation. With
regard to this – although it is arguably on the verge of this paper`s scope – I
would like to highlight the fact, that according to some research in modern
behavioural economics and psychology, money is not the only or even the best
motivational tool. In their study4
Ariely et al. show through a series of experiments that money is an effective
motivational tool only when it comes to mechanical tasks, but fails when it
comes to creative tasks. They also argue that “the results of the
experiments reported here suggest, at a minimum, that high payments cannot be
relied upon to produce optimal behaviour.”5
Thus a potent question arises, whether money should be relied at all as the
primary tool for solving the problem of aligning the agent`s and principal`s
interests.

1 See (n 9) and (n 19).

2 See the full text here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/640470/corporate-governance-reform-government-response.pdf

3 Bebchuk and Fried (n 6) 72.

4 Dan Ariely, Uri Gneezy, George Loewenstein, and Nina Mazar – “Large
Stakes and Big Mistakes”, Review of Economic Studies (2009) 76, 451–469

5 Ibid.