01).- Why is the agency issue so problematic for company law? (May 2008).

02).- ‘While shareholders remain passive we are always going to have a problem with
managerial discretion’. Discuss.
This question requires the candidate to address one of the central aspects of corporate theory
because the fact that management and shareholders are separate creates the central agency
problem that both aggregate theory and realist theory focus on. The agency problem relates to
the fact that if the shareholders take no part in the running of the company, mechanisms have
to be devised to ensure that managers do not abuse their discretion. Aggregate theorists such
as Berle and Jensen would advocate legal mechanisms that focus management power on
shareholders. Realist theorists such as Dodd, on the other hand, view the agency issue as an
essential way to ensure that management can run the company for the benefit of all. More
recently the report of the DTI Company Law Review Steering Group formulated the concept of
‘enlightened shareholder value’ to deal with the stakeholder aspects of the agency problem.
This forms the basis of s.172 of the Companies Act 2006 and the business review (formerly the
Operating and Financial Review). (October 2008).

03).- Why is the ‘agency’ problem such a big issue, both theoretically and practically, for
company law?
This question requires candidates to address one of the central aspects of corporate theory,
that is, what happens when a separation of ownership from control has occurred, giving rise to
the ‘agency’ problem.
From a theoretical perspective the fact that management and shareholders are separate
creates the central agency problem that both the main theories — aggregate theory and realist
theory — focus on.
The agency problem relates to the fact that if the shareholders take no part in the running of
the company, mechanisms have to be devised to ensure that management do not abuse their
discretion.
Aggregate theorists such as Berle and Jensen would advocate focusing on legal mechanisms
that focus management power on shareholders. Realist theorists such as Dodd, on the other
hand, view the agency issue as an essential way to ensure that management can run the
company for the benefit of all. The problem has remained an issue for shareholders and the
community and was partly addressed in the report of the DTI Company Law Review Steering
Group as part of the reforms leading to the CA 2006. The steering group formulated the
concept of ‘enlightened shareholder value’ to deal with the stakeholder aspects of the agency
problem. This forms the basis of s.172 of the Companies Act 2006 and the business review
(formerly the Operating and Financial Review). (May 2009).

04).- Why does the separation of ownership from control cause such problems for company
law? (October 2009).

05).- What lessons can we learn about the ‘agency’ problem from the financial crisis that
unfolded in Autumn 2008? (May 2010).

06).- Why is the ‘agency’ issue within companies a continuing problem? (October 2010).

07).-“Corporate theory allows us to work out solutions to the occasional problems that arise in
company law.” Discuss. (May 2011).

08).- Is corporate theory useful? (October 2011).