Written by Elise Perraud, NEDonBoard COO
NEDonBoard joined the coalition supporting the Better Business Act whose objective is to amend section 172 of the Companies Act to ensure that every organisation puts balancing people, profit and planet at the center of the purpose and responsibility of their directors. This ethos is embraced within the modern and contemporary business governance practices promoted by NEDonBoard in its events and training courses.
What is the Better Business Act?
The Better Business Act is a business-led campaign to change UK law and deliver a new contract between businesses and society. Subsection 172(1) Companies Act 2006 allows directors to consider stakeholders when making decisions, but this has to be in the course of pursuing the success of the company for the benefit of shareholders. The Better Business Act proposes to change the default position so that NEDs and board members would no longer be obliged to prioritise shareholders and would advance the interests of shareholders alongside those of society and the environment.
Currently, at the time of writing this article, the BBA coalition consists of over 750 businesses. The campaign was initiated by B Lab UK.
Why NEDonBoard became a signatory to the BBA
NEDonBoard joined the Better Business Act coalition because the proposed changes in section 172(1) are aligned with our mission to accelerate sustainability and development. We promote modern and contemporary business and corporate governance practices that put stakeholders, including shareholders, society and the planet at the center of board decisions.
How the organisation on which you serve can join the coalition
NEDonBoard encourages you to read further and assess your support with the proposed changes in section 172.
Supplementary information:
Section 172 of the Companies Act 2006 is as follows:
172 Duty to promote the success of the company
(1) 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, and in doing so have regard (amongst other matters) to—
(a) the likely consequences of any decision in the long term,
(b) the interests of the company’s employees,
(c) the need to foster the company’s business relationships with suppliers, customers and others,
(d) the impact of the company’s operations on the community and the environment,
(e) the desirability of the company maintaining a reputation for high standards of business conduct, and
(f) the need to act fairly as between members of the company.
The Better Business Act proposed the following amendments:
172 Duty to advance the purpose of the company
(1) A director of a company must act in the way the director considers, in good faith, would be most likely to advance the purpose of the company, and in doing so must have regard (amongst other matters) to the following considerations—
(a) the likely consequences of any decision in the long term,
(b) the interests of the company’s employees,
(c) the need to foster the company’s business relationships with suppliers, customers and others,
(d) the impact of the company’s operations on the community and the environment,
(e) the desirability of the company maintaining a well-deserved reputation for trustworthiness and high standards of business conduct, and
(f) the need to act fairly as between members of the company.
(2) The purpose of a company shall be to benefit its members as a whole, whilst operating in a manner that also—
(a) benefits wider society and the environment in a manner commensurate with the size of the company and the nature of its operations; and
(b) reduces harms the company creates or costs it imposes on wider society or the environment, with the goal of eliminating any such harm or costs.
(3) A company may specify in its Articles a purpose that is more beneficial to wider society and the environment than the purpose set out in subsection (2).
(4) The duty imposed upon directors by this section―
(a) has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company; and
(b) is owed solely to the company and not to any other interested parties.
For more information, please refer to https://betterbusinessact.org/.
Related post: The Better Business Act and your ESG director responsibilities
New to the NED role and looking for an understanding of directors’ duty, responsibilities and liabilities? Please visit the NED Accelerator Programme page.
