The Cadbury board may have failed to observe company law by agreeing to the Kraft takeover bid, a leading management author has warned.
Gordon Pearson, author of The Rise and Fall of Management, reported in his blog that directors have the legal duty, according to the Companies Act of 2006, ‘to promote the success of the company for the benefit of all its members and in doing so have regard (amongst other matters) to a) the likely consequences of any decision in the long term, b) the interests of the company’s employees as well as the interests of other stakeholders.’
He added that the board ‘appear to have ignored these legal duties’, and instead obeyed the fashionable economists’ view that the Board is nothing more than agents of the shareholders.
The apparent grounds that the share price offered is ‘probably higher then the company would be likely to achieve in the next two or three years if it continued its independent existence’ is insufficient to enable the bid to proceed, he claimed.
‘The Cadbury directors … are not agents of the shareholders,’ he wrote. ‘Their contract is with the company, which is set up as a legal entity in its own right. And their duty is to serve the best interests of the company. Shareholders have limited liability with regard to the company and their ownership rights are similarly limited.’
The bid for Cadbury would not be accepted in other EU countries, and possibly not even in the United States itself, he said.
‘In Germany, for example, employees are enfranchised through the two-tier board system where employees have 50 per cent of membership of the supervisory board. As a consequence German industry is not simply available for sale to the highest bidder irrespective of the interests of the company and its employees. In the United States similar enfranchisement is taking place, for example, with the United Auto Workers Union now part owners of the admittedly now broken General Motors and Chrysler,’ he said.
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