Student no. 1910249 Word count: 2995
LH Company Law Summative Assignment
Student no. 1910249
Word count: 2994
Essay questions:
Q4 & Q6
, Student no. 1910249 Word count: 2995
4)
Section 172 of the Companies Act 2006 contends the primacy that directors owe a duty to
pursue shareholder value maximisation. To achieve this primary goal, MNC’s continuously
innovate their organisational forms in order to extract maximum value from labour. For
example, using foreign subsidiaries and outsourcing as strategies to avoid costs. This essay
argues that MNC innovating organisationally means that legal developments designed to hold
them accountable for their exploitative behaviours can be side-stepped. Although labour
governance initiatives and tort law have attempted to hold MNCs accountable for their
exploitative practices and negative externalities, they are weak in practice because of the
organisational adaptability of the corporate form.
Use of subsidiaries
Separate corporate personality1 recognises that a limited company has ‘rights and liabilities
appropriate to itself’. Courts are reluctant to ‘lift the corporate veil’2, disregarding separate
corporate personality and recognising the company as one with those involved. As such,
MNCs benefit from the strict use of veil-piercing because subsidiaries they may own are a
separate entity to their parent companies and as such, parent companies’ assets are protected
from its subsidiaries’ losses by the corporate veil.3 This means MNCs can abuse this
organisational corporate form to enhance profit maximisation through cheap labour and tax
avoidance. Evidently, parent companies can relocate their high profit-making assets in
subsidiaries in low-tax jurisdictions without being liable. They can outsource risks associated
1 Salomon v Salomon [1987]
2 Prest v Petrodel Resources Ltd and others [2013]
3 Adams v Cape Industries [1990]
LH Company Law Summative Assignment
Student no. 1910249
Word count: 2994
Essay questions:
Q4 & Q6
, Student no. 1910249 Word count: 2995
4)
Section 172 of the Companies Act 2006 contends the primacy that directors owe a duty to
pursue shareholder value maximisation. To achieve this primary goal, MNC’s continuously
innovate their organisational forms in order to extract maximum value from labour. For
example, using foreign subsidiaries and outsourcing as strategies to avoid costs. This essay
argues that MNC innovating organisationally means that legal developments designed to hold
them accountable for their exploitative behaviours can be side-stepped. Although labour
governance initiatives and tort law have attempted to hold MNCs accountable for their
exploitative practices and negative externalities, they are weak in practice because of the
organisational adaptability of the corporate form.
Use of subsidiaries
Separate corporate personality1 recognises that a limited company has ‘rights and liabilities
appropriate to itself’. Courts are reluctant to ‘lift the corporate veil’2, disregarding separate
corporate personality and recognising the company as one with those involved. As such,
MNCs benefit from the strict use of veil-piercing because subsidiaries they may own are a
separate entity to their parent companies and as such, parent companies’ assets are protected
from its subsidiaries’ losses by the corporate veil.3 This means MNCs can abuse this
organisational corporate form to enhance profit maximisation through cheap labour and tax
avoidance. Evidently, parent companies can relocate their high profit-making assets in
subsidiaries in low-tax jurisdictions without being liable. They can outsource risks associated
1 Salomon v Salomon [1987]
2 Prest v Petrodel Resources Ltd and others [2013]
3 Adams v Cape Industries [1990]
