What’s on the legislative horizon?

Section 172 of the Companies Act is the general duty of directors, to promote the success of the company. 

Nowadays it is taken to mean directors must think about (have regard to) a large array of consequences including:

• the firms’ relationship with customers, suppliers, 
• impact on the community, the environment, 
• reputation and standards of conduct.  

However, the words continue to say promote the “success” of the company, which some read as financial, with limited stakeholder benefit.  As such, s172 has a long history of disagreement and debate, as firms grapple with it.

s.172 reporting is backward looking.  That will hardly help a firm head-off risk or use long-term thinking. 

We should all take note, that the European Union is on the verge of changing its law applying to directors’ duties.  EU countries are on the verge of more prescription.

The European Commission Directorate of Consumers Final Report of July 2020 looked at the root causes of short-termism and short-term benefit.   The report concluded that:

• directors interpret their duties narrowly and lack strategic perspective. 
• a higher level of corporate responsibility is needed.

Noting the sense and logic of that report, and limitations in our own company law, we can surely expect to see more legislation, and more prescription, setting out higher expectations of directors, in the United Kingdom in due course.   

Not all firms are ready.

Those without horizon scanning, who are short-termist, are at higher risk. 

But don’t worry – you can be ready, and painlessly.  

All it takes, is governance support.

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