Submissions on the Companies (Directors Duties) Amendment Bill have now closed and the Bill is now undergoing Select Committee Review.
The Amendment Bill aims to modernise the current Act with certain corporate governance practices.
Purpose of the Companies (Directors Duties) Amendment Bill
The Companies Act requires company directors to act in good faith and consider “what the director believes to be the best interests of the company” when making director decisions. Traditionally, “best interests” has been viewed primarily in terms of shareholder returns, however many modern corporates already recognise the importance of ESG (environmental, social, and governance) matters to their business and factor these into their decision-making where appropriate.
The Bill proposes to update the Companies Act to expressly state that directors may (but are not required to) consider Te Tiriti, environmental impacts, ethical behaviour, fair employment practices, and the interests of the wider community as part of the decision-making process.
Submissions on the Bill
The Bill has received mixed submissions. It has been praised for being consistent with modern corporate governance practices which recognise the importance of ESG factors in business success and sustainability, and for consistency with the NZX and ASX Corporate Governance Codes and other industry codes which support consideration of and reporting on non-financial matters including ESG.
At the same time, it has been criticised for being vaguely drafted, optional, and “light-touch” for matters that would be more appropriately dealt with either through specific legislation, or as part of a wider review of directors’ duties.
The volume of submissions received shows a high level of interest among business, academic and community groups in whether and how ESG considerations should feature alongside core director duties under New Zealand law.
The Select Committee will continue to hear in-person submissions and has until 9 May 2023 to make its report to Parliament. With an election year, change in leadership and resulting policy reprioritisation in the mix, it will be interesting to see what the Select Committee ultimately recommends.
Whether the Bill proceeds out of Select Committee or not, it would not be surprising to also see a recommendation for a more thorough and fundamental review of the directors’ duties and the importance and structure of ESG considerations under New Zealand law.
For more information on this Bill, or directors’ duties generally, please contact a member of our Corporate and Commercial Law Team.
Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.