Corporate Governance

Corporate Governance in the UK (Part 3)

By J. Robert Brown

We have been discussing differences in the system of corporate governance between the US and the UK. One of the potentially most significant changes made in the mammoth revision of the Companies Act in 2006 was a change in the fiduciary duty standards imposed on directors. Section 172 requires directors to "promote the success of the company."  This requires consideration of: 

• (a) the likely consequences of any decision in the long term,
• (b) the interests of the company’s employees,
• (c) the need to foster the company’s business relationships with suppliers, customers and others,
• (d) the impact of the company’s operations on the community and the environment,
• (e) the desirability of the company maintaining a reputation for high standards of business conduct, and
• (f) the need to act fairly as between members of the company.
• Subsection (3) provides that these duties "in certain circumstances" requiring directors to "consider or act in the

  interests of creditors of the company."

The Section indicates that these considerations are designed to promote the success of the company on behalf of shareholders.  In other words, the interests of shareholders remain paramount.  Nonetheless, it imposes an affirmative obligation to consider non-shareholder interests in the decision making process.  Asone commentator has noted:  "It can be seen that among other things, this duty introduces wider corporate social responsibility into a director’s decision making process."

Full post as published by The Race to the Bottom on January 10, 2008 (boomark / email).