Whatever happened to focusing on profits?


15 May 2006

We help companies grow, and that includes obtaining growth capital through private placements and listing on AIM. An integral part is to help build the right management team and the right board.

The proposed new clause to the UK laws covering director’s duties is causing some concern. By placing more vague statutory duties on the director, it makes it more likely that some disgruntled shareholder or member of the public will attempt to hold a director liable in a court of law.

The results are two-fold. First it will be harder to recruit qualified directors. Do you really want all that trouble for a job that probably isn’t paying that well and which you, if you have been successful in business (and that is the type of person we want on the board), frankly, do not need.

Second, there will be an explosion of CYA paper-work and lawyers’ fees, slowing down the business and innovation.

156. 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 must have regard (amongst other matters) to:
    • the likely consequences of any decision in the long term,
    • the interests of the company’s employees,
    • the need to foster the company’s business relationships with suppliers, customers and others,
    • the impact of the company’s operations on the community and the environment,
    • the desirability of the company maintaining a reputation for high standards of business conduct; and
    • the need to act fairly as between members of the company.
  2. The duty imposed by this section 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.

Will somebody please help me and use the comments to give me three examples of what “others” might be in “foster the company’s business relationships with suppliers, customers and others”?

Whatever happened to building long-term profits? The problem is the second “must” in the proposed amendment. No one will disagree with the list as a guide to new, inexperienced directors, but making people personally liable for each of these points is an invitation to opportunistic litigation.