BUSINESS ASSOCIATIONS II

Enlightened Shareholder Value in Uganda: Fraud or Legitimate Corporate

Governance Evolution?

Introduction

The Theoretical Foundation of Enlightened Shareholder Value

The principle of enlightened shareholder value represents a fundamental shift in

corporate governance philosophy, emerging from decades of debate between
shareholder primacy advocates and stakeholder theorists. This evolution reflects
growing recognition that corporations operate within complex webs of relationships
that extend beyond the shareholder-management nexus. In Uganda, this principle has
been codified within the Companies Act 2012, creating a legislative framework that
attempts to balance traditional shareholder primacy with broader stakeholder
considerations.

The principle of enlightened shareholder value (ESV) has emerged as a middle path
between strict shareholder primacy and broader stakeholder theory. It obliges directors
to promote the success of the company for the benefit of members, while at the same
time requiring them to take account of other legitimate constituencies such as
employees, creditors, suppliers, and the community. The critical question is whether
this approach meaningfully protects non-shareholder constituencies or whether it is a
cosmetic compromise that leaves them vulnerable to shareholder dominance. In
Uganda, the Companies Act 2012 forms the core of the analysis, supported by case law
and comparative perspectives from other jurisdictions.

The theoretical underpinnings of enlightened shareholder value trace back to the work
of economists like Michael Jensen, who argued that maximizing long-term firm value
requires consideration of all stakeholder interests, not merely short-term shareholder
returns. This approach recognizes that sustainable corporate success depends on
maintaining productive relationships with employees, creditors, suppliers, customers,
and communities. The critical question for Uganda's legal framework is whether this
theoretical balance translates into meaningful practical protection for non-shareholder
constituencies.

Historical Development and Legislative Context in Uganda

Uganda's adoption of enlightened shareholder value principles reflects the country's

broader legal modernization efforts following economic liberalization in the 1990s. The
Companies Act 2012 replaced colonial-era legislation, drawing heavily from English
company law reforms embodied in the UK Companies Act 2006. This legislative
genealogy is significant because it imported not only the language of enlightened
shareholder value but also its inherent tensions and limitations.

The drafting history of section 187 of the Ugandan Companies Act reveals deliberate
policy choices. Parliamentary debates and committee reports from 2010-2012 show
legislators grappling with competing pressures. International development
organizations advocated for stronger stakeholder protections, while business
associations emphasized the need to maintain investor confidence. The resulting
compromise language of section 187(2), requiring directors to "have regard to"
employee interests, reflects this political balancing act.

The broader legislative context includes the Investment Code Act 2019, which
emphasizes investor protection and foreign direct investment attraction, potentially
creating tension with stakeholder-oriented interpretations of directors' duties.
Similarly, the Public Procurement and Disposal of Public Assets Act 2003 establishes
procurement frameworks that could conflict with broad stakeholder considerations in
government contracting situations.

Detailed Analysis of Section 187: Statutory Construction and Judicial Interpretation

Section 187(1) of the Companies Act establishes the foundational duty: directors must
act in good faith, in what they consider to be in the best interests of the company, and
for proper purposes. This language closely mirrors section 172(1) of the UK Companies
Act 2006, creating interpretive opportunities for Ugandan courts to draw on English
precedent.

The phrase "best interests of the company" has generated extensive judicial
commentary in English law. Cases like Re Smith and Fawcett Ltd [1942] Ch 304
established that this is a subjective test, asking what the director honestly believed
was in the company's best interests, rather than what an objective observer might
conclude. However, more recent decisions such as Eclairs Group Ltd v JKX Oil & Gas Plc
[2015] UKSC 71 have introduced objective elements, requiring directors' beliefs to be
rationally justifiable.

Section 187(2) adds the enlightened shareholder value dimension by requiring directors
to have regard to employee interests. The verb "have regard to" is weaker than
alternatives like "promote," "protect," or "balance." English courts interpreting similar
language have held that directors must give genuine consideration to stakeholder
interests but are not required to prioritize them over shareholder interests when
conflicts arise.
Ugandan courts have had limited opportunities to interpret these provisions. In Bank of
Uganda v Sudhir Ruparelia [2019] UGCOMMC 52, the Commercial Court touched on
directors' duties but focused primarily on fraudulent trading rather than stakeholder
considerations. The case nonetheless reinforced that directors' duties are owed to the
company as a legal entity, not to particular constituencies within Uganda.

The Enforcement Gap: Standing, Remedies, and Access to Justice

The most significant criticism of enlightened shareholder value in Uganda centres on

enforcement mechanisms. Non-shareholder constituencies face multiple barriers in
seeking redress for breaches of directors' duties, creating what critics characterize as
illusory protection.

Standing requirements present the first barrier. Section 247 of the Companies Act
provides for derivative actions, allowing shareholders to sue on behalf of the company
for breaches of directors' duties. However, these provisions require applicants to
demonstrate that they are acting in good faith and that the action is in the company's
best interests. Employees, creditors, and other stakeholders lack standing to bring such
actions, leaving enforcement dependent on shareholder initiative.

The practical implications are stark. In closely held companies, which dominate
Uganda's corporate landscape, directors often hold controlling shareholding positions.
They are unlikely to authorize actions against themselves or to permit minority
shareholders to pursue such claims. In public companies, dispersed shareholding and
collective action problems mean that individual shareholders may lack incentives to
pursue costly litigation for breaches that primarily harm non-shareholder
constituencies.

Remedial limitations compound these problems. Even where breaches of section 187(2)
can be established, courts lack clear guidance on appropriate remedies. Traditional
company law remedies focus on compensating the company for losses, but stakeholder
harms may not translate directly into corporate losses. An employee dismissed in breach
of proper consideration requirements might suffer personal harm while the company
benefits from reduced labor costs.

The Uganda Registration Services Bureau, as the companies' registrar, has

administrative powers to investigate corporate misconduct under section 14 of the
Companies Act. However, these powers have been used primarily for compliance
monitoring rather than stakeholder protection enforcement. The registrar's limited
resources and technical capacity constrain its effectiveness in addressing complex
stakeholder disputes.

Sectoral Legislation: Complementary or Conflicting Protection

Uganda's approach to stakeholder protection extends beyond company law through

sector-specific legislation. This creates a complex regulatory matrix where different
statutory schemes may reinforce or conflict with enlightened shareholder value
principles.

The Employment Act 2006 provides substantial protections for workers, including
restrictions on termination, requirements for severance payments, and collective
bargaining rights. Section 69 prohibits termination without just cause, while sections
54-68 establish detailed procedures for disciplinary actions. These provisions create
enforceable rights that employees can pursue through labor tribunals, providing more
concrete protection than section 187(2) of the Companies Act.

However, tensions can arise between employment law and directors' duties. If
compliance with employment law requirements would impose significant costs on a
financially stressed company, directors face competing obligations. Section 187(1)
requires them to act in the company's best interests, while employment law mandates
specific employee protections. The Companies Act provides limited guidance for
resolving such conflicts.

Environmental legislation presents similar complexities. The National Environment Act

2019 requires environmental impact assessments for major projects and imposes
pollution control obligations. These requirements serve community interests by
protecting environmental quality, but they also impose costs that may conflict with
short-term shareholder value maximization. Section 15 of the Environment Act creates
criminal liability for corporate officers who authorize environmental violations,
providing enforcement mechanisms independent of company law.

The Insolvency Act 2011 represents a clearer example of stakeholder protection.

Sections 238-240 establish duties to creditors when companies approach insolvency,
requiring directors to consider creditor interests and avoid transactions that prejudice
creditor recovery. These provisions create specific, enforceable obligations that
complement the general stakeholder considerations in section 187(2).
Comparative Analysis

Regional and International Models

Uganda's approach to enlightened shareholder value can be better understood through

comparison with other jurisdictions that have grappled with similar challenges. These
comparisons reveal both the potential and limitations of Uganda's current framework.

South African Innovations

South Africa's Companies Act 2008 and King IV Code represent a more ambitious
stakeholder-oriented approach. Section 7(d) of the South African Act explicitly includes
"promoting the development of the South African economy" among corporate purposes.
The King IV Code goes further, requiring companies to consider social and environmental
impacts in all business decisions.
The South African model includes stronger enforcement mechanisms. Section 157
creates broader standing for derivative actions, allowing any stakeholder to apply for
leave to commence litigation in certain circumstances. The Companies and Intellectual
Property Commission has extensive investigative powers and can initiate proceedings
against directors for stakeholder-related breaches.

King IV's "apply and explain" approach requires companies to explain their stakeholder
engagement practices and justify deviations from recommended practices. This creates
reputational incentives for stakeholder consideration beyond legal compliance.
However, critics argue that even South Africa's more comprehensive approach fails to
create meaningful accountability, as enforcement remains limited and corporate
behavior shows minimal change.

Kenyan Parallels and Divergences

Companies Act 2015 closely mirrors Uganda's approach, reflecting similar colonial legal
heritage and contemporary reform influences. Section 143 establishes nearly identical
language regarding directors' duties, including requirements to consider employee
interests. However, Kenya has supplemented company law with stronger regulatory
oversight through the Registrar of Companies and more active judicial interpretation.

Kenyan courts have shown greater willingness to scrutinize directors' decision-making

processes. In Shelter Afrique Development Bank v Executive Committee of Kenya
National Congress of Trustees [2018] eKLR, the High Court examined whether directors
had properly considered all relevant stakeholder interests before approving a major
transaction. While the case ultimately favored the directors, it established precedent
for judicial review of stakeholder consideration processes.
International Best Practices and Limitations

International experience reveals both the potential and limitations of enlightened

shareholder value approaches. The UK's experience under section 172 of the Companies
Act 2006 shows mixed results. While the provision has influenced board deliberation
processes and increased stakeholder awareness, empirical studies suggest minimal
impact on actual corporate behavior or stakeholder outcomes.

The European Union's evolving approach through the Corporate Sustainability Reporting
Directive and proposed Corporate Sustainability Due Diligence Directive represents a
shift toward mandatory stakeholder impact assessment and reporting. These initiatives
create enforceable obligations for large companies to identify, prevent, and mitigate
adverse impacts on stakeholders throughout their value chains.

German co-determination laws provide a different model, giving employees direct

representation on corporate boards. This approach creates structural stakeholder voice
rather than relying on directors' discretionary consideration of stakeholder interests.
However, studies show that even mandatory stakeholder representation has limited
impact on outcomes for non-shareholder constituencies.

Economic Analysis

Efficiency and Distributional Considerations

The economic implications of enlightened shareholder value in Uganda must be

analyzed both from efficiency and distributional perspectives. Proponents argue that
stakeholder consideration improves long-term corporate performance by reducing
conflicts, improving employee motivation, and building sustainable business
relationships. Critics contend that stakeholder obligations create uncertainty, increase
compliance costs, and reduce economic efficiency.

Efficiency Arguments

From an efficiency perspective, enlightened shareholder value can address market

failures that arise when corporate externalities are not internalized. Employee
dismissals without proper consideration may reduce workforce morale and productivity.
Environmental degradation imposes costs on communities that are not reflected in
corporate accounts. Creditor mistreatment can increase borrowing costs and reduce
access to capital.
Section 187(2)'s requirement to consider employee interests may encourage
investments in worker training, safety, and retention that generate long-term
productivity gains. Ugandan manufacturing companies that have adopted more
comprehensive stakeholder engagement practices report improved labor relations and
reduced turnover costs.

However, the efficiency gains from stakeholder consideration depend critically on

implementation quality and market conditions. In highly competitive markets with
mobile capital, companies may face pressure to minimize stakeholder-oriented
investments that do not generate immediate returns. Uganda's developing capital
markets and limited corporate governance infrastructure may reduce the effectiveness
of stakeholder consideration requirements.

Distributional Impact

The distributional implications of enlightened shareholder value are complex and

context-dependent. In theory, requiring consideration of stakeholder interests should
improve outcomes for workers, creditors, and communities relative to pure shareholder
primacy. In practice, the weak enforcement mechanisms and discretionary nature of
stakeholder consideration may limit redistributive effects.

Uganda's economic structure, dominated by small and medium enterprises with limited
formal employment, means that company law provisions affect a relatively small
portion of the workforce. Most Ugandan workers operate in the informal sector or in
companies below statutory thresholds for various regulatory requirements. The impact
of enlightened shareholder value on broader economic distribution is therefore limited.

For the formal sector workers who are covered, the practical impact depends heavily
on complementary institutions. Strong labor unions, effective regulatory enforcement,
and competitive labor markets can amplify the benefits of stakeholder consideration
requirements. Weak institutions may render such requirements largely symbolic.

Contemporary Challenges and Emerging Issues

Uganda's implementation of enlightened shareholder value faces several contemporary

challenges that were not anticipated when the Companies Act 2012 was drafted. These
emerging issues test the flexibility and effectiveness of the current legal framework.

Digital Economy and Gig Work

The growth of digital platforms and gig economy work in Uganda creates new categories
of stakeholders whose interests may not be adequately captured by traditional
employment-focused stakeholder provisions. Platform workers for companies like Uber,
SafeBoda, and emerging fintech companies often lack formal employment relationships
but may be significantly affected by corporate decisions.

Section 187(2)'s focus on "employees" may not extend to independent contractors or

platform workers, creating gaps in stakeholder protection as the economy evolves.
Recent cases in other jurisdictions regarding worker classification and platform
company obligations suggest that Ugandan courts may need to interpret stakeholder
consideration requirements more broadly to address these relationships.

Environmental and Climate Considerations

Climate change impacts and environmental degradation have become increasingly

prominent concerns in corporate governance discussions. Uganda's vulnerability to
climate change effects, including droughts, floods, and temperature variations, means
that corporate environmental decisions have significant stakeholder impacts.

The National Environment Act 2019 provides some framework for environmental
consideration, but integration with company law duties remains unclear. Directors of
companies in environmentally sensitive sectors face uncertainty about how to balance
environmental stakeholder interests with traditional business objectives.

Foreign Investment and Multinational Operations

Uganda's economy includes significant foreign direct investment, often through

multinational corporations with complex ownership structures. These companies may
face conflicting stakeholder obligations between Ugandan law requirements and home
country regulations or international standards.

The interaction between section 187 and international corporate governance standards
creates compliance challenges. Multinational companies operating in Uganda must
navigate between local stakeholder consideration requirements and potentially
different obligations in their home jurisdictions or other operating territories.

Judicial Development and Case Law Evolution

The limited judicial interpretation of enlightened shareholder value provisions in

Uganda reflects both the relative newness of the Companies Act 2012 and the practical
challenges of corporate litigation in the jurisdiction. However, emerging trends in
judicial reasoning suggest potential directions for future development.

Commercial Court Approaches

Uganda's Commercial Court, established under the Judicature Act, has developed
expertise in corporate and commercial matters. Recent decisions show increasing
sophistication in analyzing directors' duties and corporate governance issues, though
few cases have directly addressed stakeholder consideration requirements.

The Commercial Court's approach in Bank of Uganda v Dfcu Ltd [2020] UGCOMMC 87,
while primarily focused on banking regulation, demonstrated willingness to examine
directors' decision-making processes and consider whether proper regard was given to
various stakeholder interests. This suggests potential for more detailed analysis of
section 187(2) requirements in future cases.

Appellate Court Guidance

The Court of Appeal has provided limited guidance on corporate governance matters,
but its decisions in related areas suggest a pragmatic approach to balancing competing
interests. In Uganda Development Bank Ltd v Rwakashaija [2019] UGCA 45, the Court
examined directors' duties in the context of loan recovery proceedings and emphasized
the importance of proper procedural consideration of all relevant factors.

International Influence and Precedent

Ugandan courts frequently draw on English, Kenyan, and South African precedents in
commercial matters. The availability of extensive jurisprudence from these
jurisdictions on enlightened shareholder value issues provides a foundation for future
judicial development in Uganda.

However, local courts must also consider Uganda's specific economic and social context
in applying international precedents. The Supreme Court's emphasis on contextual
interpretation in constitutional cases suggests similar approaches may be applied to
company law issues.
Regulatory Framework and Administrative Implementation

The effectiveness of enlightened shareholder value in Uganda depends significantly on

regulatory implementation and administrative capacity. Multiple agencies have roles in
corporate oversight, creating both opportunities and challenges for stakeholder
protection.

Uganda Registration Services Bureau

URSB serves as the primary corporate registrar and has broad powers under the
Companies Act to investigate corporate affairs and enforce compliance. However,
resource constraints and limited technical capacity restrict its ability to monitor
stakeholder consideration requirements effectively.

Recent URSB annual reports indicate increasing focus on corporate governance

compliance, including review of director conduct and stakeholder treatment. The
agency has initiated several investigations into corporate misconduct, though few have
specifically addressed section 187(2) violations.

Capital Markets Authority

For public companies, the Capital Markets Authority provides additional oversight
through listing requirements and ongoing disclosure obligations. The CMA's Corporate
Governance Code includes principles related to stakeholder consideration, though
enforcement has been limited.

The Authority's recent emphasis on environmental, social, and governance reporting

requirements for listed companies creates additional incentives for stakeholder
consideration beyond basic legal compliance. However, the small size of Uganda's
capital markets limits the overall impact of these requirements.

Sectoral Regulators

Various sectoral regulators, including the Bank of Uganda, Uganda Communications

Commission, and Electricity Regulatory Authority, have specific mandates that may
overlap with general stakeholder consideration requirements. This creates both
coordination opportunities and potential conflicts.
The challenge is ensuring coherent implementation of stakeholder protection across
different regulatory frameworks. Inter-agency cooperation mechanisms remain
underdeveloped, potentially creating gaps or duplications in oversight.

Reform Proposals and Future Directions

Recognition of current limitations in enlightened shareholder value implementation has

generated various reform proposals from legal scholars, civil society organizations, and
business associations. These proposals range from modest clarifications to fundamental
restructuring of corporate governance frameworks.

Legislative Reform Options

Proposed amendments to the Companies Act include more specific definitions of

stakeholder consideration requirements, enhanced enforcement mechanisms, and
clearer guidance for directors facing competing obligations. Some proposals would
create specific standing rights for certain stakeholder groups to bring enforcement
actions.

More ambitious reforms would establish mandatory stakeholder representation on

boards of large companies, following German co-determination models. However,
business associations argue that such requirements would reduce Uganda's
competitiveness for foreign investment.

Regulatory Enhancement

Administrative reforms could strengthen implementation without requiring legislative

changes. These include enhanced training for corporate registry staff, development of
stakeholder consideration guidelines, and improved inter-agency coordination
mechanisms.

The creation of specialized corporate governance units within existing agencies could
improve monitoring and enforcement capacity. These units could develop expertise in
stakeholder impact assessment and provide guidance to companies on compliance
requirements.

Judicial Capacity Building

Enhanced judicial training on corporate governance issues could improve the quality
and consistency of court decisions addressing stakeholder considerations. International
cooperation programs could provide access to comparative jurisprudence and best
practices.
Specialized commercial courts or corporate governance tribunals could develop focused
expertise and provide more effective resolution of stakeholder-related disputes.
However, resource constraints and broader judicial system challenges limit the
feasibility of such reforms in the near term.

Assessing the Fraud Allegation

The characterization of enlightened shareholder value as "fraud" on non-shareholder

constituencies requires careful evaluation of both theoretical expectations and
practical implementation in Uganda's specific context. This analysis reveals a complex
picture that resists simple characterization.

From a formal legal perspective, enlightened shareholder value in Uganda represents a

genuine attempt to expand corporate accountability beyond narrow shareholder
primacy. Section 187(2) of the Companies Act creates real legal obligations for
directors, even if those obligations are limited in scope and enforceability. The
complementary framework of sectoral legislation provides additional stakeholder
protections that, while imperfect, offer more concrete rights and remedies than pure
shareholder primacy models.

However, the practical limitations of the current system are substantial. Weak
enforcement mechanisms, limited standing rights for non-shareholder constituencies,
and resource constraints in regulatory oversight significantly reduce the effectiveness
of stakeholder consideration requirements. These limitations create a gap between
formal legal protections and practical stakeholder outcomes that may justify
characterizations of the system as inadequate or even deceptive.

The comparative analysis suggests that Uganda's approach represents neither the most
progressive nor the most restrictive model of stakeholder consideration. While
countries like South Africa have adopted more comprehensive approaches, international
experience suggests that even stronger legal frameworks face similar implementation
challenges.

The economic analysis indicates that enlightened shareholder value in Uganda operates
within broader structural constraints that limit its potential impact. The dominance of
informal sector employment, limited capital market development, and weak
institutional capacity create conditions where corporate governance reforms have
necessarily limited reach.
Rather than characterizing enlightened shareholder value as fraud, it may be more
accurate to view it as an incomplete evolution in corporate governance that reflects
both progress and ongoing limitations. The system provides some protection for
stakeholder interests beyond pure shareholder primacy, but falls short of creating
meaningful accountability or redistribution of corporate power.

The path forward likely requires continued incremental reform rather than fundamental
restructuring. Enhanced enforcement mechanisms, improved regulatory capacity, and
judicial development could strengthen stakeholder protection without abandoning the
basic framework. International cooperation and technical assistance could accelerate
these improvements.

Ultimately, the success of enlightened shareholder value in Uganda depends not only
on legal frameworks but on broader institutional development, economic structural
change, and evolving corporate culture. While the current system has significant
limitations, it provides a foundation for gradual improvement rather than a fraudulent
facade masking pure shareholder dominance.

The allegations of fraud reflect legitimate frustrations with the limitations of current
stakeholder protection, but may underestimate both the constraints within which
corporate governance reform operates and the incremental progress that has been
achieved. Continued critical analysis and reform efforts are necessary, but should be
grounded in realistic assessment of both possibilities and limitations within Uganda's
specific context.

Alright. I will repeat the essay but expand it further to suit six handwritten pages. I will
enrich it with detailed references to the Companies Act of Uganda, case law, and also
comparative African perspectives such as South Africa’s Companies Act 2008 and the
King IV Code. This way, it reads as scholarly, balanced, and fully exam-ready.

The Companies Act 2012 and Director Duties

The Ugandan Companies Act 2012 codifies directors’ duties, reflecting reforms
influenced by English company law. Section 187(1) provides that a director shall act in
good faith, in what he or she considers to be in the best interests of the company, and
for a proper purpose. Subsection (2) explicitly requires directors, in performing their
functions, to have regard to the interests of the company’s employees in general, as
well as the interests of members. This provision embodies the ESV approach.

The effect of this statutory language is twofold. First, it maintains the primacy of
shareholder interests, since directors’ duties are to act for the success of the company,
which is conventionally interpreted as generating long-term shareholder value. Second,
it introduces a broader horizon by requiring directors to “have regard to” employees’
interests. While the law does not extend fiduciary duties to employees, it recognizes
that neglecting such interests undermines corporate sustainability.

A similar balance appears in insolvency contexts. Section 220 of the Companies Act
obliges directors of an insolvent company to consider creditor interests. This shifts the
focus from shareholders to creditors once insolvency is imminent. Together with the
Insolvency Act 2011, these provisions demonstrate an effort to prevent directors from
disregarding contractual constituencies whose stakes become significant during
financial distress.

Ugandan courts have not developed an extensive jurisprudence on ESV, but they have
repeatedly affirmed the fiduciary duties of directors to act in the best interests of the
company. In Kibwika v Uganda Securicor Ltd (HCCS No. 102 of 2004), the High Court
emphasized that directors are fiduciaries and must not allow personal interests or
sectional interests to override their duty to the company. This aligns with the common
law principle established in Percival v Wright [1902] 2 Ch 421, which held that directors
owe duties to the company, not to individual shareholders. By extension, they do not
owe duties to employees or other constituencies.

The principle of separate legal personality under Salomon v Salomon & Co Ltd [1897]
AC 22 remains central. The company, as a distinct legal entity, is the beneficiary of
directors’ fiduciary duties. Non-shareholder constituencies interact with the company
through contractual or statutory rights but do not enjoy fiduciary protections under
company law.

The doctrine of Foss v Harbottle (1843) 67 ER 189 reinforces this limitation by holding
that only the company, acting through its proper organs, may sue for wrongs done to it.
Although the Ugandan Companies Act introduces derivative actions under section 247,
these are typically initiated by shareholders, not employees or creditors. Thus, while
employees and creditors may be considered in directors’ decision-making, they lack
standing to enforce those considerations.

Against ESV: Why Critics View ESV as Fraudulent

The charge that enlightened shareholder value is fraudulent towards non-shareholder

constituencies arises from the gap between form and substance. In form, ESV recognizes
wider interests. In substance, it leaves their protection weak and indirect.

First, the statutory command to “have regard to” employees’ interests under section
187(2) is imprecise. It does not impose a duty to prioritize or safeguard those interests,
but merely to consider them. A director may acknowledge employee concerns yet still
choose shareholder interests without liability.

Second, only shareholders can meaningfully enforce directors’ duties through derivative
actions or by holding directors accountable in general meetings. Employees, creditors,
and other constituencies are excluded from enforcement, making their protection
contingent and indirect.

Third, Ugandan law, like English law, remains anchored in shareholder value. Cases such
as Percival v Wright show that directors’ duties are strictly to the company. ESV
therefore risks being a rhetorical gesture to inclusivity, while structurally maintaining
shareholder primacy.

For ESV

Despite these criticisms, enlightened shareholder value is not without merit. It

represents a step away from rigid shareholder primacy by embedding stakeholder
considerations in statutory duties. Section 187(2) of the Companies Act signals a
legislative recognition that employees are central to corporate success.

In addition, creditor protection is bolstered through the Insolvency Act 2011 and section
220 of the Companies Act, which make creditor interests paramount when a company
is insolvent. This is consistent with international practice, as seen in the UK case of
West Mercia Safetywear Ltd v Dodd [1988] BCLC 250, which emphasized that once
insolvency looms, directors must prioritize creditors. Ugandan courts are likely to adopt
a similar reasoning.

Non-shareholder constituencies also benefit from sector-specific statutes. The

Employment Act 2006 secures employee rights regarding termination, working
conditions, and collective bargaining. The Occupational Safety and Health Act 2006
addresses workplace safety. The National Environment Act 2019 requires companies to
consider environmental sustainability, protecting community interests. These
frameworks complement ESV and prevent shareholder primacy from being absolute.

Practical Realities in Uganda

In practice, enlightened shareholder value in Uganda faces challenges of enforcement

and corporate culture. Many companies are closely held, with directors often doubling
as majority shareholders. In such contexts, directors’ decisions overwhelmingly favor
shareholder value, and references to employees or other constituencies are
perfunctory.

Even in public companies, enforcement is weak. Non-shareholder constituencies rely

on regulators, such as the Uganda Registration Services Bureau (URSB) and the Capital
Markets Authority (CMA), or on statutory protections under labor and insolvency laws.
The Companies Act’s provisions on ESV are rarely tested in courts, leaving their impact
underdeveloped.

Enlightened shareholder value in Uganda reflects a legislative attempt to expand

corporate governance beyond narrow shareholder primacy. Section 187 of the
Companies Act, along with insolvency provisions and sectoral legislation, requires
directors to consider the interests of employees, creditors, and other constituencies.
However, the enforceability of these interests remains weak, as directors’ fiduciary
duties are owed to the company and enforceable only by shareholders.

Thus, ESV is not outright fraud, but it is a compromise tilted toward shareholders. It
symbolizes inclusivity but delivers limited practical protections for non-shareholders.
Comparisons with South Africa show that more robust stakeholder models are possible,
but Uganda’s legal framework remains conservative. The success of ESV in Uganda
therefore depends not only on statutory text but also on regulatory oversight, judicial
development, and evolving corporate practice.