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Director's duties: Environmental and employee issues |
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David Glass of London based Law Firm Pritchard Englefield reviews
latest provisions in the Companies Act 2006, which reflect changing
priorities in society whereby companies are expected to act in a
socially responsible way rather than simply for the profit of their
shareholders.
The Companies Act 2006, which became law on 8th November 2006, provides
that “A director of a company must act in the 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…” (clause 173) and that in doing
so the director must (amongst other matters) have regard to a number of
factors including “the interests of the company’s employees” and “the
impact of the company’s operations on the community and the
environment”.
The new provisions reflect changing priorities in society whereby
companies are expected to act in a socially responsible way rather than
simply for the profit of their shareholders.
The express requirement imposed by the Act for directors of a UK
company to consider the environment and employees is matched by the new
provisions for Directors’ Reports contained in Regulations enacted in
March 2005 whereby Directors’ Reports of most large companies for
financial years beginning on or after the 1st April 2005 will need to
contain a “business review” by the director. The business review must
constitute –
“(a) a fair review of the business of the company, and
(b) a description of the principal risks and uncertainties facing the company”
and is required to be “a balanced and comprehensive analysis of –
(a) the development and performance of the business of the company during the financial year, and
(b) the position of the company at the end of that year,
consistent with the size and complexity of the business”.
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In considering these issues the review must “to the extent necessary
for an understanding of the development, performance or position of the
business of the company”, include –
(a) analysis using financial key performance indicators, and
(b) where appropriate, analysis using other key performance indicators,
including information relating to environmental matters and employee
matters.
Small companies (as defined) are exempt from the need to include such a
“business review” in their Directors’ Report and medium-sized companies
(as defined) are exempt from the need to consider non-financial key
performance indicators (such as environmental and employee matters).
However, as at the end of September 2006, there is a mounting lobby for
the business review requirements to be extended beyond large companies
to encompass smaller companies.
The recognition by companies (and not to mention political parties!) of
the need to emphasize their “green” and “humanitarian” credentials is a
growing feature of British business life as well as of priorities in
the world generally and in the current climate emphasising “corporate
social responsibility” and the need for proper “corporate governance”
is likely to have a continuing effect on UK companies’ legislation
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