Tag Archives: directors’ duties

Half-hearted, half-baked and stuck in the rut of business as usual: The Government’s Response to the Green Paper Consultation on Corporate Governance Reform

By Prof Charlotte Villiers, Professor of Company Law and Corporate Governance (University of Bristol Law School).

The UK currently faces huge economic and political challenges. The Brexit negotiations are clearly of central importance and the outcome will strongly influence our country’s future as a trading nation. Our economic prospects will also be dependent on the strength of our corporate governance system. During the past couple of years, a number of corporate scandals and failures such as the demise of BHS with its huge pension losses and the worker exploitation at Sports Direct as well as continued publicity of ‘fat cat’ executive pay have threatened the reputation of the UKs corporate governance framework. In light of these negative reports a corporate governance inquiry was launched by the House of Commons Committee of the Department for Business, Energy and Industrial Strategy and the Government published a Green Paper on Corporate Governance Reform in November 2016. Despite a busy schedule with Brexit and a slimmed down Queen’s Speech, the Government continues to pursue its plans for corporate governance reform with its publication of a Government Response to the Green Paper in August 2017.

When Theresa May made her speech launching her campaign to become Prime Minister in July 2016 she announced her intention to ‘have not just consumers represented on company boards, but employees as well.’ She repeated the promise as Prime Minister at the Conservative Party Conference in the same year. In that same campaign speech in July Theresa May also noted that during the previous eighteen years executive pay had more than trebled and there was ‘an irrational, unhealthy and growing gap between what these companies pay their workers and what they pay their bosses’. She said that she wanted ‘to make shareholder votes on corporate pay not just advisory but binding’ and ‘to see more transparency, including the full disclosure of bonus targets and the publication of “pay multiple” data: that is, the ratio between the CEO’s pay and the average company worker’s pay’ and ‘to simplify the way bonuses are paid so that the bosses’ incentives are better aligned with the long-term interests of the company and its shareholders.’

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ESG investing and section 172 of the Companies Act 2006: Desperate times call for soft law measures

By Dr Georgina Tsagas, Lecturer in Corporate Law (University of Bristol Law School).

In this blog entry, Dr Tsagas provides an overview of her proposal for the reform of the UK’s Corporate Governance Code. Her full arguments will soon be published in G Tsagas, “Section 172 of the Companies Act 2006: Desperate times call for soft law measures”, in N Boeger and C Villiers (eds.), Shaping the Corporate Landscape: towards corporate reform and enterprise diversity, Oxford: Hart Publishing, forthcoming.

Section 172 CA 2006: Not worth the paper it is written on?

Section 172 of the Companies Act 2006 has been afforded much attention during Parliamentary discussions on the codification of directors’ duties and has since the enactment of the Companies Act 2006 occupied much space in discussions among scholars who share an academic interest in the shareholder/stakeholder debate, in policy documents on law reforms following a series of corporate failures, as well as in company law lecture notes provided by Law Schools across the UK.

The previous duty to act bona fide in the interests of the company has been substituted by section 172 CA 2006, which imposes on a director the duty to ‘act in a way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole’ and in doing so must have regard to a series of factors listed in the section. The factors are: (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.

With the UK leaving the EU, it is a critical time to discuss enlightened decision-making on boards, considering that, arguably, one of the key benefits of joining the EU with regard to UK company law, was that the UK was prompted to consider incorporating provisions affording a certain level of protection to the interests of other constituencies across a wide range of company and securities law Acts and regulations. What often escapes the attention of participants in discussions surrounding s. 172 CA 2006, is the section’s limitations not so much in terms of it prioritising the interests of shareholders over the interests of other constituencies, but with regard to its enforcement and utility overall. Continue reading

We need a new corporate landscape

By Prof Charlotte Villers, Professor of Company Law, and Ms Nina Boeger, Senior Lecturer in Law (University of Bristol Law School–Centre for Law and Enterprise).

© Childs & Sulzmann. Artist’s impression of Boxworks at the Engine Shed

© Childs & Sulzmann. Artist’s impression of Boxworks at the Engine Shed (Bristol)

Our corporate landscape has relevance for our post-Brexit future. Yet deep public distrust exists not just with regard to our politicians but also with regard to business. Recent debacles involving the now defunct British Home Stores and Sports Direct are just the tip of the iceberg in what is widely seen as a broken economic and political system that has given precedence to the leading market actors.

Corporate governance is the key means by which global wealth is distributed but that wealth is not distributed fairly. Two stakeholder constituents are prioritised: boardroom directors who frequently enjoy eye-watering pay and perks, and shareholders, at least in theory, through the profit maximisation imperative. Both groups have focused on making a quick buck rather than the long term interests of their companies. Workers, at the bottom of the corporate hierarchies, have little chance of improving their means of living and face greater levels of insecurity in their working and home lives. Workers further down the supply chain risk their lives trying to scratch a living in countries only too glad to gain trade from the powerful multinationals.  Consumers lose out as product quality and services are whittled down and the environment, as a natural resource constituency, barely gets a look in. Continue reading