The Cadbury board 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. The board appear to have ignored these legal duties in accepting the bid on 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.
In accepting the bid the Cadbury directors are clearly not acting within either the letter or the spirit of the law. But they are conforming to the dominant free market economic orthodoxy expressed by the late Milton Friedman as “to make as much money for shareholders as possible.” This is the simplistic philosophy which lies behind our current economic difficulties and which the majority of the current generation of economists, politicians and industrialists appear still to believe.
The Cadbury directors have swallowed the economists’ lie that they are simply the agents of the company’s shareholders and have to act solely in their best interests. But they are not agents of the shareholders. 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.
As indicated in an earlier post on Cadbury, it is not a bid that would be accepted in other EU countries, and for that matter probably not in the United States itself. Cadbury’s 180 year history, its Quaker origins and ethical values, make it a particularly sympathetic subject, but it is only one of many British companies, and indeed whole industries, which have been sold out to the highest bidder for the same spurious and illegal reasons.
In Germany, for example, employees are enfranchised through the two tier board system where employees have 50% 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. Only in New Labour Britain are we still all up for sale to the highest bidder.