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27 September 2021

Companies (Directors Duties) Amendment Bill – purpose not just profit

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The Companies (Directors Duties) Amendment Bill was drawn out of the Members Bill ballot on 23 September 2021.  It begins to formalise a shift toward directors’ consideration of stakeholder interests rather than simply the financial bottom line – which is arguably more reflective of modern corporate governance theory. 

The Bill proposes an amendment to section 131 of the Companies Act 1993.  This provision relates to the duty of directors to act in good faith and in the best interests of the company. 

The proposed amendment seeks to make explicit that a director of a company, when determining the best interests of the company, may take into account broader environmental, social and governance factors, including:

·         Recognising the principles of Te Tiriti o Waitangi.

·         Reducing adverse environmental impacts.

·         Upholding high standards of ethical behaviour.

·         Following fair and equitable employment practices.

·         Recognising the interests of the wider community.

Expect that the Bill will generate considerable debate about how fit for purpose the current legislation is. Earlier this year the IOD together with MintersEllisonRuddWatts released a joint white paper which argued that it was time to review directors’ duties in New Zealand. It was posited that it is critical that directors have clarity in relation to which stakeholders they can and should legitimately have regard to, to what extent and whether they can/should give priority to others over the stated preferences of shareholders.

This Bill is yet to receive its first reading.

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For more information, or to discuss directors duties and governance issues affecting your business, get in touch.


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