September 3, 2019 Promoting the success of your company
One of the seven general duties of a director as set out in the Companies Act 2006 is a duty to promote the success of the company. But what is success? Is it measured in terms of company longevity or profitability, in growth or market penetration, or should directors be using some other benchmark for success?
The Companies Act sets out six non-exhaustive areas for consideration when carrying out the duty of promoting the success of the company. These are the:
- likely consequences of any decision in the long term
- interests of the company’s employees
- need to foster the company’s business relationships with suppliers, customers and others
- impact of the company’s operations on the community and the environment
- desirability of the company maintaining a reputation for high standards or business conduct
- need to act fairly as between members of the company
What is clear from these criteria is the way in which companies do not exist in isolation. The decisions which directors make have an impact which extends far beyond their own organisations and into the wider community.
Despite this, the general perception is that companies operate under a profit first regime. It’s an accusation which was levied at the financial services community at the end of the last recession when regulators called for an end to cultures which put profits ahead of customer outcomes. And it’s an accusation which regularly arises whenever company decisions have a negative impact on employee well-being, customer service, the environment and the wider community.
Interestingly it is also an accusation which has now been acknowledged to have been true by the Business Roundtable, one of America’s most influential business groups. A statement signed by 181 CEOs comments that since 1997 each principles of corporate governance statement issued by the Roundtable “has endorsed principles of shareholder primacy – that corporations exist principally to serve shareholders.”
This latest statement overturns that viewpoint, setting out five new commitments. Whilst generating long-term value for shareholders does appear within commitments, it is given equal weight with delivering value to customers, investing in employees, dealing fairly and ethically with suppliers, and supporting local communities. Effectively the American Business Roundtable statement now aligns more closely with the expectations as set out in the UK Companies Act.
How this new viewpoint will translate into concrete actions has yet to be seen. But if it does represent a true change in the profit first nature of organisations, then in the future promoting the success of your company should bring benefits to wider communities and people.