Modern Multinational Corporations

1. “The object of the company is to publish high quality scientific, academic and history of art books (excluding books of fiction) that are accessible to the general public. The company has the power to enter into any transaction, hold any type of property, and engage in any arrangements that are conducive to the pursuit of its objects.”

2. “No director shall enter into any contract on behalf of the company with a value exceeding £10,000.”

3. “Any shares held by Alastair, in the case that he is a director and there is a vote to remove him from his position as director, carry two votes per share.”

Alastair and Celine are appointed directors of Enlightened Books. Alastair adopts the title of “Managing Director” and uses it in his business cards but without having been appointed as such by the board. The business does well and many of their books become best sellers. In early 2020, Alastair makes Enlightened Books enter into a publishing agreement with David, an author of books of fiction, to publish his next novel. The agreement provides for an upfront payment to David of £15,000 as an advance for royalties. David is sent a copy of Enlightened Books’ articles of association. Alastair receives a bribe of £1,000 from David’s father who was anxious to ensure that David obtains a contract to publish his next novel. Also, Alastair when approached by Erica, a very successful author of popular science books, tells her that Enlightened Books is not interested in publishing her work, but that Open Minds Publishing Ltd, another great publisher, may be interested. Indeed, Erica sings a publishing agreement with Open Minds. All the shares of Open Minds are held by Georgia, Alastair’s wife, who acts as a nominee for Alastair who has the real economic interest in the company.

When Celine becomes aware of the above matters, she asks you the following questions:

1. Is Enlightened Books Publishing Ltd bound by the publishing agreement with David?

2. Would it be possible to remove the special voting rights of the shares that are held by Alastair (see point iii above) without his consent?

3. Has Alastair breached any of his duties as a director?

4. If Brian were to agree with Celine that litigation should be brought against Alastair on the ground of his breaches of directors’ duties, how could this be achieved?

5. If Brian were to disagree with Celine and side with Alastair, what legal options would be open to Celine, and which option would be the most advisable?

Sample Answer

Modern Multinational Corporations and the East India Company

Modern multinational corporations (MNCs) share significant structural and operational similarities with British trading corporations such as the East India Company (EIC), despite the centuries separating their existence. The EIC, established in 1600, was a chartered company granted extensive commercial privileges and quasi-governmental powers, including the right to wage war, administer territories, and exercise political influence. Modern MNCs, while legally restricted to commercial operations, demonstrate comparable global reach, influence on local economies, and capacity to shape regulatory environments through lobbying and strategic investment decisions.

From a corporate governance perspective, the EIC operated with a board of directors responsible to shareholders, much like contemporary corporations. Today’s MNCs maintain hierarchical management structures where directors and executives exercise considerable autonomy, often across multiple jurisdictions. The separation of ownership and control, famously analysed by Berle and Means (1932), reflects the same tensions observed in the EIC, where shareholders had limited direct influence over operational decisions.

However, contemporary corporations differ in several respects. Unlike the EIC, which enjoyed legal monopolies and political authority, modern MNCs operate within competitive markets constrained by international law, corporate regulation, and anti-trust policies. Moreover, MNCs are subject to corporate social responsibility (CSR) obligations and global norms, which, although not legally binding in all cases, exert reputational pressure that the EIC did not face. Despite these differences, critics argue that the concentration of economic power, influence over labor practices, and ability to shift operations across borders echo the EIC’s historical influence, justifying continued scrutiny of MNC operations.

In conclusion, while modern MNCs operate under stricter legal and regulatory frameworks than the East India Company, parallels in governance, global influence, and shareholder-executive dynamics validate the assertion that contemporary corporations are, in some respects, a continuation of historical trading entities’ practices.

Industrial Interest in the Company Form in the 19th Century

The claim that nineteenth-century legislation enabling the company form was of little interest to industrialists until the end of the century reflects historical realities tempered by evolving commercial practice. Legislation such as the Joint Stock Companies Act 1844 and the Companies Act 1856 facilitated limited liability and formalised corporate registration, theoretically allowing industrialists to raise capital more efficiently. Nonetheless, widespread adoption lagged due to social, economic, and cultural factors.

Early industrialists were often family-owned proprietors who valued control over scale. The administrative complexity and perceived costs of incorporation discouraged small and medium-sized industrial operators. Additionally, limited legal precedent regarding shareholder rights and corporate governance rendered industrialists cautious about ceding control to external investors (Gower, 2012). By contrast, investors seeking passive returns were attracted to corporate structures that separated ownership and management, reflecting the slow diffusion of corporate forms across sectors.

By the late nineteenth century, increased demand for capital-intensive enterprises, such as railways, utilities, and large manufacturing firms, incentivized incorporation. The Companies Act 1862 simplified registration and reduced legal hurdles, fostering broader industrial interest. Empirical evidence indicates that by the 1890s, incorporation became a preferred vehicle for raising capital for industrial expansion, confirming the historical pattern suggested in the assessment brief.

Thus, the statement is partially accurate: early legislation created the legal infrastructure for corporate growth, but socio-economic and cultural factors delayed widespread industrial adoption until the end of the century. The interplay of legal facilitation and market demand underscores the gradual acceptance of the company form.

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