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This chapter explores the role of the shareholders, who have substantial influence over the company. UK company law is shareholder-centred, but it would be wrong to conclude that shareholders are the principals of the directors or of the company. Shareholders normally appoint the directors and auditors, and they have a mandatory power to remove them. The shareholders are also responsible for approving certain transactions, including share issues, takeover defences, political donations, provisions made for employees on the cessation of business, and (under the Listing Rules) certain large transactions. Taken together, these powers give the shareholders significant influence over the management of the company. The rights of shareholders are, however, also subject to constraints. These constraints operate for the benefit of minority shareholders and creditors. The chapter then examines the UK Stewardship Code, through which the government attempts to exercise pressure on institutional shareholders to refrain from requesting short-term return. It also analyses the reflective loss principle, which restricts shareholders in pursuing damages claims against third parties in circumstances where the company has a competing claim.

This chapter examines in more detail the role company law allocates to shareholders. The first part of the chapter analyses the rationales for requiring some corporate decisions not to be fully delegated to the board. Mandatory involvement of the shareholders is limited to a small number of corporate decisions. In the absence of a statutory requirement for shareholder input into the decision, the chapter examines how easy it is for shareholders who wish to involve themselves in corporate decision-making to do so, whether in the case of particular decisions or by removing directors of whose management they disapprove. The second part of the chapter discusses the recent development of regulatory pressures on institutional shareholders to ‘engage’ with the companies in which they invest. This is a development associated above all with the Stewardship Code and is based on the notion that shareholders have a bigger contribution to make to the management of large companies than the Companies Act assumes to be the case.

This chapter provides an outline of the consequences of breach of the duties discussed in this book and, in particular, of the duty to avoid conflicts (the conflicts rule) at general law and under statute. This includes discussion of third party liability based on the rule in Barnes v Addy, which may be very valuable in certain circumstances. It highlights the available remedies, as well as issues arising in the framing and application of the remedies. It also draws attention to the role played by the unfair prejudice (or oppression) remedy in relation to directors’ conflicts. Given that this remedy is favoured by shareholders, and that a number of unfair prejudice cases concern directors’ conflicts, it is important to outline its contours. Indirect enforcement, and any significant differences in enforcement mechanisms between the jurisdictions, will be considered. The chapter does not provide a comprehensive outline in relation to all remedies or the detail of every aspect of the remedies discussed. There is, at times, clear divergence between the application of certain remedies in different jurisdictions—a complete and comprehensive comparative critical analysis of remedies would fill an entire book on its own.