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When it comes to the 'best interests' of a company, one view assumes that maximising shareholders' return should be the paramount factor in directors' decision making.
However, many companies have, for some time, considered their wider responsibilities toward social and environmental issues when determining the 'best interests' of the company. A Bill before parliament now aims to formalise that approach.
Parliament has recently proposed to amend the duties owed by directors to the companies they serve. The Companies Act (Directors Duties) Amendment Bill (Bill), will amend section 131 of the Companies Act 1993, by making it clear that company directors may now, in determining the best interests of a company, take into account matters other than a company’s financial bottom line.
Under the proposed amendment, directors would be entitled to consider the following recognised environmental, social and governance factors:
- Principles of te Tiriti o Waitangi (the Treaty of Waitangi);
- Environmental impact;
- Upholding good corporate ethics;
- Being a good employer;
- The interests of the wider community.
The Bill (in its current form) is permissive rather than mandatory, as such, it is unlikely to have any direct practical impact on the day-to-day running of companies. However, it goes someway to clarify the other factors that directors can take into consideration when determining the best interests of a company.
The Bill has been referred to the select committee, with the deadline for submissions passing on 17 January 2023. A total of 53 submissions were received. Many of which called for, amongst other things, the Bill to be amended to make consideration of the above factors mandatory, rather than permissive. The select committee’s report is due on 9 May 2023. We expect that if the Bill is passed, it will come into effect in the second half of this year.
If you have any questions about how these proposed changes might affect you, or your organisation, please do contact one of our experts.
Author: Heather Froude
Heather Froude is an Associate in our Resource Management, Litigation and Employment Teams.