Amending directors’ duties to go beyond the bottom line

The Companies (Directors Duties) Amendment Bill 2021 (Bill) proposes to amend section 131 of the Companies Act 1993 (Act) to clarify that company directors may take into account recognised environmental, social and governance considerations when determining the “best interests” of a company.

The Bill was drawn out of the Member’s Bill ballot, with MP, Duncan Webb (Labour) in charge of it.  It is likely that the Bill will have the numbers to pass through Parliament, subject to the usual parliamentary scrutiny and amendment process. 

While the proposed changes to the Act are permissive rather than mandatory and arguably reflect the existing practices of many corporates, explicit clarity on matters of corporate social responsibility is, in the authors’ view, ultimately a win-win for shareholders and stakeholders alike and reform of this nature is only to be encouraged.

The proposed change 

Section 131 of the Act states that company directors are required to act in good faith and in the “best interests” of a company. 

The Bill provides that a company director, when determining the best interests of a company, may take into account recognised environmental, social and governance factors, such as:

  • recognising the principles of the Treaty of Waitangi (Te Tiriti o Waitangi);
  • reducing adverse environmental impacts;
  • upholding high standards of ethical behaviour;
  • following fair and equitable employment practices; and
  • recognising the interests of the wider community.

As it stands, the Bill does not require directors to take these factors into account.  It provides that directors may consider these factors when determining the best interests of a company.  That is, it is permissive rather than mandatory.

The rationale

The noted purpose of the Bill is to “make clear that a company director, in acting as the mind and will of the company, can take actions that take into account wider matters other than the financial bottom-line. This may include matters such as the principles of Te Tiriti, environmental impacts, good corporate ethics, being a good employer, and the interests of the wider community.”  In other words, the Bill intends to make explicitly clear the current practice of many corporates and drive a change in practice for others. 

With savvy, informed and concerned consumers prepared to vote with their dollars, demonstrated corporate social responsibility (fostering brand reputation and consumer trust) is widely understood to create competitive advantage leading to long-term success and profits. That being the case, it begs the question as to whether the explicit clarity provided by the Bill is necessary. 

Key takeaways 

The proposed amendments to section 131 of the Act clarify that company directors are permitted to consider more than just short-term financial results and profit-advancing goals when determining what is in the “best interests” of a company. 

As directors are already allowed to consider matters that will lead to a long-term better position for a company when determining the best course of action for a company, the Bill does not change the law.  However, if passed, it would make it explicitly clear that matters of the nature included in the Bill may be regarded by directors in formal recognition of the fact that business success may be measured in a number of different ways. 

The Bill complements the New Zealand Government’s proposed implementation of a single broad policy to broaden non-financial reporting by requiring and supporting the making of climate-related disclosures by certain financial institutions and supporting related matters, as announced earlier this year (see the Financial Sector (Climate-related Disclosures and Other Matters) Amendment Bill).  This marks a growing recognition that wider factors such as environmental health, social wellbeing, fair and equitable outcomes, and greater inclusivity also contribute to corporate success.   

If you have any questions about directors’ duties, please get in touch with our Business Advice Team or your usual contact at Hesketh Henry.

Disclaimer:  The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.



Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
Media contact - Kerry Browne
Please contact Kerry with any media enquiries and with any questions related to marketing or sponsorships on +64 9 375 8747 or via email.

Related Articles / Insights & Opinion

Knowing your limits: High Court confirms liability caps in engineering consultancy agreements are consistent with Building Act duties
Design errors in a construction project can result in millions of dollars in loss.  Standard form consultancy agreements typically limit the amount that can be recovered for such errors.  The cap on...
09.07.2024 Posted in Construction & Disputes
glenn carstens peters npxXWgQZQ unsplash
Sender beware – how private are digital workplace conversations?
Following on from the recent Official Information Act request for correspondence between Ministry of Justice employees, employees may be wondering how private their online conversations with colleague...
04.07.2024 Posted in Employment
Concrete pillars impressive
TCC confirms Slip Rule limits in Adjudications
The Technology and Construction Court (TCC) has confirmed the narrow parameters of the ‘slip rule’ in the UK, which allows adjudicators to amend their determination to correct for any clerical or ...
02.07.2024 Posted in Construction & Disputes
Scots rule standard notification clause was condition precedent
In a warning for contractors, a Scottish Court has ruled that a standard form notification clause was a condition precedent to recovering time-related costs (TRCs) (FES Ltd v HFD Construction Group Lt...
01.07.2024 Posted in Construction
rape blossom
Anticipatory Repudiatory Breach and the Date of Default: Ayhan Sezer v Agroinvest
The decision in Ayhan Sezer v Agroinvest [2024] EWHC 479 (Comm) clarifies that where there has been an anticipatory repudiatory breach of contract, the “date of default” is the date of the breach ...
25.06.2024 Posted in Trade and Transport
My cross-lease neighbour wants me to consent to their extension. Can I refuse?
From time to time a cross-lease property owner may be asked by their cross-lease neighbour for their consent to specific matters, such as proposed structural alterations or additions to their neighbou...
25.06.2024 Posted in Property
Contract stock edit
I have a land covenant (or an easement) registered on my title that restricts the use of my land. Can I get this removed?
Where land is subject to covenants and easements, owners might find themselves in a position where they are unintentionally or unknowingly in breach of a covenant or easement or have purchased land th...
25.06.2024 Posted in Property
Send us an enquiry

For expert legal advice, please complete the form below or call us on (09) 375 8700.