Explaining the Company Law Reform Bill

The government takes the issue of the environmental impact of businesses and corporate social responsibility very seriously, and I believe the Company Law Reform Bill is the best approach to ensure responsible business behavior in the long term. The aim of the bill is to show that there is real synergy between improving business performance economically and creating more socially responsible businesses. The review for the bill asked the question “in whose interest should companies be run?” and looked at the following two approaches to discern the most advantageous outcome.

First, the enlightened shareholder, under which the basic goal of directors is the success of the company in the collective best interests of shareholders, under which directors are required to recognize wider expectations of responsible business behavior.

Secondly, pluralism, which would enable or require company boards to override the interests of shareholders where they considered that this would satisfy broader ethical or social considerations.

Unashamedly, the government suggests that the enlightened shareholder is the better option. First, because it demonstrates the need for synergy between corporate social responsibility and financial success so that directors don’t begin believing that the interests of employees and the company’s impact on the environment are obstacles to financial success. Second, the pluralist approach easily could inadvertently make it more difficult to hold directors to account. Finally, the government wants to provide clarity for directors. I don’t believe this could be achieved by setting up competing priorities.

I don’t believe this Bill abnegates directors of responsibility or is a minimalist approach because it requires that directors do everything “so far as reasonably practicable.” It has also been suggested that this Bill could be used – or misused – as a vehicle for the trade justice campaign. I think this is a misunderstanding. Basically, that mentality is like muddling up a piece of legislation about a vehicle (the car, or the company with legislation about a journey (the map, the purpose or where you want to get using the vehicle). In short, the Bill states that a company and its directors do have a responsibility in general terms that come within the range of responsibilities they undertake in their position. However, if one wants to place very specific responsibilities on companies or directors, one would not put that in a Companies Bill – you place it in Employment or Environmental legislation, etc…

I am a firm supporter of the Bill, and believe it will be very affective to accomplish its very specific goals, and hope that it will gain the enthusiastic support from a wide range of public and private sector stakeholders.

I encourage people to take a careful look at the Bill to see how it is simplifying and modernising company law.