284 18: Company directors Part F Management, administration and regulation of companies
This is only one of the powers given to directors that are subject to this fiduciary duty. Others include:
Power to borrow
Power to give security
Power to refuse to register a transfer of shares
Power to call general meetings
Power to circulate information to shareholders
9.4.2 Duty to promote the success of the company (s 172)An overriding theme of the Companies Act 2006 is the principle that the purpose of the legal framework
surrounding companies should be to help companies do business. Their main purpose is to create wealth
for the shareholders.
This theme is evident in the duty of directors to promote the success of a company. During the
development of the Act, the independent Company Law Review recommended that company law should
consider the interests of those who companies are run for. It decided that the new Act should embrace the
principle of 'enlightened shareholder value'.
In essence, this principle means that the law should encourage longtermism and regard for all stakeholders
by directors and that stakeholder interests should be pursued in an enlightened and inclusive way.To achieve this, a duty of directors to act in a way, which, in good faith, promotes the success of the
company for the benefit of the members as a whole, was created.
The requirements of this duty are difficult to define and possibly problematic to apply, so the Act provides
directors with a non-exhaustive list of issues to keep in mind.
When exercising this duty directors should consider:
The consequences of decisions in the long term.
The interests of their employees.
The need to develop good relationships with customers and suppliers.
The impact of the company on the local community and the environment.
The desirability of maintaining high standards of business conduct and a good reputation.
The need to act fairly as between all members of the company.
The list identifies areas of particular importance and modern day expectations of responsible business
behaviour. For example the interests of the company's employees and the impact of the company's
operations on the community and the environment.
The Act does not define what should be regarded as the success of a company. This is down to a
director's judgement in good faith. This is important as it ensures that business decisions are for the
directors rather than the courts.
No guidance is given for what the correct course of action would be where the various s172 duties are in
conflict. For example a decision to shut down an office may be in the long term best interests of the
company but it is certainly not in the interests of the employees affected, nor the local community in which
they live. Conflicts such as this are inevitable and could potentially leave directors open to breach of duty
claims by a wide range of stakeholders if they do not deal with them carefully.9.4.3 Duty to exercise independent judgement (s 173)
This is a simple duty that states directors must exercise independent judgement. They should not
delegate their powers of decision-making or be swayed by the influence of others. Directors may
delegate their functions to others, but they must continue to make independent decisions.
This duty is not infringed by acting in accordance with any agreement by the company that restricts the
exercise of discretion by directors, or by acting in a way authorised by the company's constitution.