An independent committee is trying to find a route through the minefield of rival ideas about the duties of directors.

Judging by the number of studies crossing my desk, the longest-running public policy battle is that for the soul of the corporation. The issue is between the supporters of the traditional view of the corporation as an agent for the shareholders and the fashionable alternative of a stakeholder corporation taking into account wider interests.

As one author, Norman Barry, notes: "It is no coincidence that stakeholder theorists regularly speak of constituencies", because they see boards as political operators holding the ring between rival pressures. He cites the potential rivalry between present employees who resent a plant relocation decision and residents in the new location whose prospects will be badly damaged if it is vetoed. He is unimpressed by a suggestion made in all seriousness by some stakeholder supporters that companies should appoint "a metaphysical director".

For the moment the conflict has been kicked into touch in the UK. The Blair government has set up a Company Law Steering Group, which is to report in 2001. The group regards itself as independent and it hopes to come out with recommendations that would not be reversed by a change of government.

Although it has not been widely noticed, it has already published a "strategic framework", outlining the main issues. This has been supplemented by a personal paper by Jonathan Rickford, the group's project director. Mr Rickford operates on "the happy lesson of experience that quite fundamental disagreements on ultimate values do not prevent consensus on practical problems".

The group has tried to narrow the controversy by emphasising its exclusive concern with corporate law. Its purely factual inquiries have also been helpful.

The popular view is that the US is the upholder of shareholder value, while Germany is seen as the apostle of the stakeholder principle. In fact, many US states have provision of a stakeholder kind. These states have manager-friendly laws as opposed to the UK's shareholder-friendly structure. The laws have mostly been the result of lobbying by managers trying to free themselves from activist shareholders and playing on the concern of state legislatures for local employment. Moreover, US states compete for corporate headquarters. In Delaware the incorporation services industry is a major contributor to revenues.

On the other hand, the steering group considers that the issues affecting board members in stakeholder countries such as Germany, Austria, the Netherlands and Sweden are little different from those that operate in the UK. Although large German corporations are required to have two-tier boards, with the unions represented on the top or supervisory one, the chairman's casting vote has usually been enough to see that the interests of shareholders prevail. A further important influence is the growing importance of institutional shareholders. In one large Austrian bank the main shareholder is now Scottish Widows.

The committee lays down options for the future. One is the development of the "enlightened shareholder value" model. Here it remains the corporation's duty to maximise shareholder value, but to do so in a responsible way, taking into account the longer term.

Although corporate law works in practice in favour of the shareholder, Section 309 of the UK Companies Act has two apparently contradictory provisions. One requires the directors to have regard to the interests of the company's employees. But it also states that the fiduciary duty imposed on directors is owed by them "to the company alone" - that is, its shareholders.

As a minimum the group is likely to recommend clarifying this section, possibly to ensure that directors recognise their obligations to have regard to the need to build "long-term and trusting relationships with employees, suppliers, customers and others as appropriate in order to secure the success of the enterprise over time".

The alternative option would favour "pluralist" responsibilities to employees, the environment, the local community and numerous other supposed duties. If the group were to take the pluralist approach, it would have to choose between permitting directors to take into account the interests of non-shareholder participants and requiring them to do so. Mr Rickford is pretty confident that, even if the group comes out for the pluralist approach, it will be permissive rather than mandatory. In other words, directors will be allowed a discretion to sacrifice commercial advantage for public policy purposes.

There is a suggested third way called "entity theory". This says that the success of a company is a sufficient criterion in itself, without emphasising either shareholders or other interests. Mr Rickford has an admirably individualist riposte to this view. "A company is . . . simply a convenient portmanteau expression for summarising the complex set of legal relations between individuals which the law prescribes to facilitate and control human associations of a particular kind." Even if legislators tried to adopt the entity approach they would still be left with the question: "Whose interest is to prevail in situations of conflict such as plant closure?"

He is also scathing about a possible fourth way, which is to impose disclosure obligations on corporations on matters affecting stakeholders. The problem here is the poor record of such obligations. "For example, in the 1970s somebody had the bright idea of encouraging exports by requiring companies to include in their reports a statement on them. The effect of this was to produce a various range of boiler-plate statements which did nothing for exports but did keep value-destroying bureaucrats in companies happily engaged in working new forms of words each year to describe in attractive terms the company's record."

The debate is encapsulated in a new book by J. Charkham and A. Simpson on the role and responsibilities of shareholders. At the beginning they claim to support the stakeholder approach; and they make many valuable points about the limitations of shareholder democracy, takeover battles and Conservative-style "wider share ownership". But if one looks at the authors' specific suggestions, they consist of improvements such as clearer duties for directors, the reporting requirements for boards and the long overdue reform of the farce of the annual general meeting.

Mr Charkham put the general point better in an earlier book: "It is argued that managements have a great many interests to consider other than the shareholders, such as employees, customers, suppliers, bankers and a community . . . But at the end of the day . . . the distinction between taking into account and being responsible to must be maintained."

Finally, a book by Martin Ricketts brings a sense of perspective to the debate by pointing out how - despite the decline of mutuals - a large share of economic activity is now carried out by organisations other than profit-seeking corporations with quoted shares.

They range from professional partnerships to employee-owned companies, non-profit making trusts, the self-employed and small and medium-sized enterprises. The latter account for 66 per cent of all European Union non-agricultural market sector employment. Nor should one forget how much activity, including the bulk of education and health, remains in the public sector in most European countries.

Large quoted corporations, which have been spotlit in all the debates about the nature of capitalism throughout the century, account in most countries for a modest share of both employment and gross domestic product; and it remains to be seen whether they will continue to constitute the leading edge.

J. Charkham and A. Simpson, Fair Shares, Oxford. J. Charkham, Keeping Good Company, Oxford (1995). Modern Company Law: consultation document, The Company Law Steering Group, Department of Trade and Industry. J. Rickford, The Next Stage in the Government Reform of Company Law, DTI. N. Barry, The Ethics of Business, New Zealand Business Round Table. M. Ricketts, The Many Ways of Governance, IEA Social Affairs Unit

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