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Introduction to Company Law

Introduction to Company Law (2nd edn)

Paul Davies
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date: 25 October 2021

7. Centralized Management III

Setting the Board’s Incentiveslocked

7. Centralized Management III

Setting the Board’s Incentiveslocked

  • Paul DaviesPaul DaviesAllen & Overy Professor of Corporate Law, University of Oxford


Celebrated for their conceptual clarity, titles in the Clarendon Law Series offer concise, accessible overviews of major fields of law and legal thought. This chapter concludes the analysis of the legal strategies available to reduce agency costs between shareholders and the board in large companies with no controlling shareholder. It analyses further uses of one of the strategies considered in Chapter 6, namely that of ‘setting agent incentives’ in particular through use of the trusteeship strategy. It covers those incentives, provided by the law, which encourage directors to act in the best interests of the shareholders, whether or not any legal sanctions are attached to their not so doing. With this strategy, the interests of the shareholders are internalized, so to speak, by the directors, not imposed on directors from outside, by way of the threat of legal sanctions.

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