Hey directors, duty calls (no not that kind of duty), and a new Bill will subtly change what your director duties entail. So, what do you need to know about this?
As a company director, it’s your job to act in good faith and in the best interests of your company. In other words, it’s your duty to not make dumb decisions that result in dire consequences for your entity. We trust that you already know and do this – if you don’t, maybe reconsider your choices.
In the past, the aim of the game was profit, meaning that acting in the best interests of the company looked like making choices that resulted in the most cash possible. But it’s not the 80s anymore.
Despite the rose-tinted view Hollywood paints of ‘Wolf of Wall Street’ opulence, company success is no longer measured in financial terms alone. Cash grabbing companies are out, companies that care are in, and we have seen many a company reputation destroyed as a result of putting money before people or the environment. Agendas like sustainability, ethics, employee care and company reputation are on every boardroom table. Again, if they’re not, maybe reconsider this.
What’s changing then?
It basically extends the ‘don’t make dumb decisions’ mantra beyond your finances. The Companies (Directors Duties) Amendment Bill 2021 proposes that directors, when acting as the mind and will of the company, can take actions that consider wider matters other than the financial bottom-line. These include any number of open-ended environmental, social and governance matters, like:
Recognising the principles of the Treaty of Waitangi (Te Tiriti o Waitangi);
Minimising negative environmental impacts;
Maintaining a high level of ethical behaviour;
Following fair and equitable employment practices; and
Recognising the interests of the wider community
The Bill doesn’t necessarily intend to change current practice, it aims to reflect what’s already happening in the wider corporate community. We know that most of you consider wider matters like the ones above every time you conduct business – we hope so anyway.
We’re also expecting to see some more discussion on what other changes to a director’s duty might be appropriate. For example, commentators have suggested that acting in the best interests of a company’s key stakeholders can also be beneficial to shareholders, as it can create positive brand reputation, which in turn will create a competitive advantage and stable long-term profits. Makes sense, right?
If you’re not sure what this could mean for you and your company, get in touch with the iCLAW team. Our team of experts (many who happen to be company directors themselves) will sit down with you and discuss how you can best fulfil your duties. Again, not those kinds of duties. You should see your GP for help doing that.
Photo Credit: Kaleidico