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07/11/2018
The GC100, which is the voice of general counsel and company secretaries working in FTSE 100 companies, recently released updated guidance on directors’ duties (the “Guidance”), specifically section 172 of the Companies Act 2006. The Guidance may assist any director in discharging their duties, particularly in the context of larger decision making processes, or be useful for directors of larger companies with varied interests or operations.
Section 172 imposes a general duty on every company director to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. The duty is owed to the Company (although shareholders could enforce this on behalf of the company through a derivative action).
Section 172 requires directors to “have regard” to a non-exhaustive list of factors; including the likely consequences of any decision in the long term, the interests of employees, how the actions of the company affect customers, suppliers, the community and the environment, the company’s reputation and the need to act fairly between the members of the Company.
The factors for consideration, as listed in section 172, are not intended to conflict with the director’s primary duty to promote the success of the company for the benefit of its members as a whole, but are matters to be considered by each director when taking any action in his/her capacity as director.
The Guidance provides a useful summary of the key matters for directors to consider when discharging their duty under section 172, the legal background to section 172, an example scenario of how directors should discharge their duties, as well as practical steps directors can take to establish an environment which assists them in discharging their duties.
The Guidance notes that:
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