Updated guidance about directors’ duties by The Chartered Governance Institute

London, 25 August 2020 – The Chartered Governance Institute has today published practical guidance for directors of companies about their general duties under the Companies Act 2006, which includes an additional section on the new section 172 reporting requirement.

Peter Swabey, Policy and Research Director at The Chartered Governance Institute comments:

“All large UK companies are required to publish a section 172(1) statement on their website and in the Annual Report, which shows how directors have discharged their duty under section 172. Boards must demonstrate how, whilst acting in the way most likely to promote the success of the company for the benefit of members, the directors have had regard to the likely consequences of any decision in the long term; the interests of the company’s employees; relationships with suppliers, customers and others; the impact of the company’s operations on the community and the environment; the company’s reputation; and the requirement to act fairly between members of the company. In particular, they have to report on how they have engaged with employees, which is a key focus of both the UK Corporate Governance Code 2018 and the Wates Corporate Governance Principles for Large Private Companies 2018. A board should also be able to demonstrate how a company has undertaken effective engagement with material stakeholders. Examples of how the key factors in section 172 might be considered in decision-making are set out in our updated guidance.

“It is important to note that directors will have obligations and responsibilities beyond the general statutory duties covered in this guidance. Directors must act in accordance with their company’s constitution and companies may, through their Articles of Association (Articles), go further than the general duties by placing more onerous requirements on their directors. These general duties are owed to the company, for the benefit of members as a whole; not directly to its shareholders. If a director breaches their duties, they could face civil action and, in some cases, criminal sanction.”

The guidance covers the key elements of the provisions under the Act and offers practical guidance for directors relating to these. The key elements are as follows:

  • Section 171: Duty to act within powers
  • Section 172: Duty to promote the success of the company
  • Section 173: Duty to exercise independent judgment
  • Section 174: Duty to exercise reasonable care, skill and diligence
  • Section 175: Duty to avoid conflicts of interest
  • Section 176: Duty not to accept benefits from third parties
  • Section 177: Duty to declare an interest in a proposed transaction or arrangement
  • Section 182: Declaration of interest in existing transaction or arrangement.

The guidance can be downloaded for free at www.icsa.org.uk/directors-duties 

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