The Third Pillar: How Markets and the State Leave the Community Behind

by Raghuram G. Rajan

law in some countries already urges management to behave in this way. In the United Kingdom, for example, the Companies Act requires the consideration of interests other than shareholders, including employees, customers, and suppliers provided it ultimately ‘promotes the success of the company’.2 Nevertheless, uncertainty over what exactly management will do in various situations can prevent the firm from benefiting fully from a clearly articulated objective. If the proposed objective is mandated in board policy and filters into managerial compensation structures, stock market investors will be able to predict management actions. They will bid up firm value appropriately. Equally, such commitment will enhance the legitimacy of corporate activity in the eyes of the public.

Law in uk is lready in place