New 2020 Law for Board Directors
Large companies must explain, in their Strategic Reports, how directors have fulfilled their section 172, Companies Act 2006 duty.
Compliance is proving challenging for many board directors.
“How” is more difficult to explain than “if”. A simple “Yes” would not satisfy this new law.
The justification for the “How” explanation, might easily give rise to challenges from the stakeholders, especially employees and shareholders.
If challenged publicly, they could cause significant damage to brands and reputations.
The new law applies to annual financial statements filed from 31 December 2020 onwards, assuming a 3 month covid-19 filing date extension.
s172 CA2006 Requirement
A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard to the:
- Consequences of any decision in the long term
- Interests of all of the stakeholders, not just the shareholders
Assuming all companies were already complying with s172 CA2006, this should not require any new processes or work.
It should simply require new methods to measure and collect evidence of what is already being done.
This is supported by Provision 5 of the UK Corporate Governance Code
“The board should understand the views of the company’s other key stakeholders and describe in the annual report how their interests and the matters set out in section 172 of the Companies Act 2006 have been considered in board discussions and decision-making.”
Thresholds for Large Companies or Groups are any two of:
- Annual turnover of more than £36 million
- Gross balance sheet assets of more than £18 million
- More than 250 employees.
Our course covers this and other key topics in more detail
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