Companies (Directors Duties) Amendment Bill - Amending directors' duties for stakeholders

23 November 2021

The Companies (Directors Duties) Amendment Bill was drawn out of the Members Bill ballot on 23 September 2021. The Bill proposes an amendment to Section 131 of the Companies Act 1993 to make it clear that, when a director determines what is in the best interests of the company, the director may consider wider stakeholder interests and not just the financial bottom line.

Section 131 in its current form sets out that directors are to act in good faith and in the best interests of the company or, where permitted by its constitution, in the best interests of a parent company or shareholder in a joint venture.

The proposed amendment seeks to clarify that a director may, when determining the best interests of the company, consider environmental, social and governance factors including but not limited to:

  • 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.

The proposed amendment follows closely on from an Institute of Directors’ White Paper that was released in July calling for a review of the corporate governance landscape in New Zealand. That White Paper sets out that “acting in the “best interests” of the company is increasingly being understood to require active consideration of stakeholders, not least because they often have a material financial impact on the company, even if indirect.”

In its current form the Bill doesn’t require directors to take such factors into account – it’s permissive for directors to do so, not mandatory. Given the number of businesses who are already taking ESG factors into consideration, it is valid to question whether such an amendment in legislation is necessary. However, our view is that while a number of directors, boards and businesses are already operating in this way, the clarification is certainly helpful.

If you would like any further information on these suggested changes, or what it may mean for your business or you as a director, please feel free to contact us.

Tom Corkill is part of our Corporate & Commercial team at Norris Ward McKinnon.

Corporate & Commercial Team