From balanced enterprise to hostile takeover: how the law forgot about management

We show that professional management began to emerge in UK companies during the first half of the twentieth century, a development which was widely theorised and accepted. However, the managerially-led enterprise was accommodated rather than protected by company law, making it vulnerable to changes in the law. The Cohen Report of 1945 paid no attention to these developments, and led to the introduction, in the Companies Act 1948, of important, but previously little appreciated, changes in the name of enhancing the accountability of directors to shareholders. The shareholders’ statutory right to remove the directors by simple majority overturned existing structures overnight and was an important driver of the hostile takeover, which emerged shortly afterwards. This deprived management of the necessary autonomy to balance the competing interests at stake in the enterprise and to foster innovation. The emergence of the current system of shareholder primacy can be traced back to these developments.