Shareholder Value and Employee Interests: Intersections between Corporate Governance, Corporate Law and Labour Law

40 Pages Posted: 9 Jul 2005

See all articles by Anthony O'Donnell

Anthony O'Donnell

La Trobe Law School

Richard Mitchell

Monash University - Department of Business Law & Taxation

Ian Ramsay

Melbourne Law School - University of Melbourne


This paper is part of a larger project that examines, by way of detailed case studies of companies, the interaction between several key factors in the creation and sustainability of Partnerships at Work. These factors include particular employment systems, forms of corporate governance and ownership structures. The project investigates how these various factors have interacted so as to give rise to - or fail to give rise to - high performance partnership-style relations at work.

The focus of this paper is on three core issues. We first examine the extent to which shareholder value has come to dominate debates around corporate governance and theories of the company. Secondly, we explore the extent to which the Australian corporate law framework offers clear support for shareholder value as a corporate governance norm or imperative. Thirdly, we examine the degree to which labour law provides a constraint on, or compels a modification of, the idea of shareholder primacy.

In relation to the first two of these issues, whereas we can clearly identify the consolidation of the shareholder value norm in contemporary corporate governance debates, our analysis leads us to the conclusion that some longstanding parts of corporate law provide only modest support for shareholder primacy. However, recent corporate governance reform strategies, such as those linking senior executive remuneration to share prices, and increasing reliance upon independent directors, are more closely linked to the pursuit of shareholder value than some of the more longstanding corporate law doctrines. Yet the impact of each of these reforms on corporate performance, and hence on the delivery of shareholder value, remains uncertain based on the results of empirical studies designed to test the outcomes of these reform strategies.

We also examine changes in corporate ownership, where, in the Australian context, the increasing ownership by institutional investors (which provides an incentive for active monitoring of the governance of the companies in which they invest) is in many cases counter-balanced by even larger non-institutional substantial shareholders (such as shareholdings of founding families or overseas companies), thereby reducing the prospects of successful institutional intervention. Patterns of institutional activism vary, depending on the size of the shareholding, the size of other non-institutional holdings in the company, the size of the company itself, the resources devoted to monitoring, the nature of the institution's portfolio and whether the institution is managing index funds. We note that institutional investors have, in recent years, increasingly argued for the types of corporate governance reforms which involve the pursuit of shareholder value.

In relation to the third issue, we argue that labour law, although not often a key focus of the research of corporate governance scholars, has always been able to be viewed as part of corporate governance to the extent to which it structures and limits what management can do in its relations with employees. However, current developments in Australian labour law are moving to a position whereby management's power to restructure the enterprise for shareholder value is being subjected to fewer constraints, with a corresponding shift of risk to employees.

Keywords: Corporate law, corporate governance, labour law

JEL Classification: J53, K22, K31

Suggested Citation

O'Donnell, Anthony and Mitchell, Richard James and Ramsay, Ian, Shareholder Value and Employee Interests: Intersections between Corporate Governance, Corporate Law and Labour Law. U of Melbourne Legal Studies Research Paper No. 128, Wisconsin International Law Journal, Vol. 23, No. 3, pp. 417-476, 2005, Available at SSRN:

Anthony O'Donnell (Contact Author)

La Trobe Law School ( email )

La Trobe University
Bundoora, VIC 3083 3142
03 9479 1256 (Phone)

Richard James Mitchell

Monash University - Department of Business Law & Taxation ( email )

Caulfield Campus
Sir John Monash Drive
Caulfield East, Victoria 3084

Ian Ramsay

Melbourne Law School - University of Melbourne ( email )

University Square
185 Pelham Street, Carlton
Victoria, Victoria 3010
+61 3 8344 5332 (Phone)


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