View from the board: company law – who needs it?

View from the board: company law - who needs it?

I am one of those sad people who think it is important to be intriguing.

For the last ten years, I have been part of a deep discussion about company
law reform. My involvement began in late 1994. In a group, together with Sir
Anthony Cleaver (then chairman of IBM UK) and Philip Goldenberg (a leading
company lawyer), we were talking about the duties of directors. ‘To whom do you
owe your duties?’ asked Philip. ‘Shareholders of course,’ said some of them.
‘Wrong,’ said Philip! ‘You owe them to the company.’

From that discussion came the 1995 Tomorrow’s Company recommendation to
change and clarify company law so that directors did understand their duties.
And from the 1995 inquiry report came the inclusive approach to sustainable
success. In retrospect, it was all so obvious. Companies do not choose between
their shareholders and their other stakeholders. In order to deliver lasting
value to their stakeholders, they needed to have excellent relationships with
all their stakeholders. To build those relationships they needed to do more than
churn out the numbers; they needed to show trustworthy behaviour based on strong
values.

When the UK’s Department of Trade & Industry decided to renew a century
of company law, it took the inclusive approach as its foundation. As a result,
the duty of directors is defined as promoting the success of the company.
Although there is a slightly nannyish bit telling them they must regard the
interests of employees, customers and other stakeholders (as if any sane
director would ignore them!), this is a great improvement.

Even after all the Treasury-inspired chaos and wrong turnings, reporting in
the future will be based on the same logic. How well has the board discharged
its duty to the company? How well has it performed and how well is it placed to
perform in future?

Forget about the technicalities and the meddling. Don’t be overwhelmed by the
pages of reconciliation to US GAAP. The essential task of reporting remains the
same. Focus on what really makes your business tick. Keep key performance
indicators constant so readers can track your progress and investors increase
their confidence. There are plenty of people to worry about compliance. Someone
needs to worry about the essence.

Mark Goyder is director of Tomorrow’s Company, tomorrowscompany.com

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