The Directors Duties Amendment Bill permitting directors to consider more than just profit seems unlikely to go forward in its current form
The controversial bill to cement environmental considerations into business looks uncertain with a lack of support at select committee level.
In little more than 100 words, the Labour MP Dr Duncan Webb’s members' bill would amend the Companies Act to say directors “may” consider Te Tiriti o Waitangi, the interests of the wider community, and reducing environmental impacts, when determining the best interests of a company.
Drawn in 2022, the bill went through the select committee process earlier this year with opponents on both sides of the House.
On one side opponents believed the current law was permissive of company directors considering more than just profit when doing business, or, in the case of the Act MP Damien Smith, that it was somehow “rooted in Marxism”.
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On the other side, opponents believed it was “limp”, that it didn’t go far enough or that it would act as a distraction to genuine change in corporate behaviours.
Some legal and governance professionals believed a wider review of the three-decade-old act would be a more effective and less risky way to address changes in governance thinking.
Director and environmentalist Richard Lauder said the select committee outcome meant the country had “entirely missed an opportunity to hold companies to a higher level of accountability” and that it was a win for shareholder primacy
In the end, the Economic Development, Science and Innovation Select Committee could not agree on whether the law should go ahead.
It recommended amendments to the bill if the Government decides to go ahead with it.
In its final report on the member's bill, the select committee said it had concerns the bill could have unintended consequences by confusing directors about their responsibilities by giving the impression the listed factors should be given more weight than others.
It said the treaty reference could bring further confusion because the relationship between the Crown and Māori is governed by Te Tiriti, and this relationship does not typically include other individuals or private entities.
It suggested the possibility of the bill’s intention being achieved by non-legislative means which could include guidance or training materials from the Government.
Ultimately it suggested alternative wording to Dr Webb’s bill that would only clarify that when considering the best interests of a company, a director “may consider matters other than the maximisation of profit”.
Director and environmentalist Richard Lauder submitted in favour of stronger wording in the bill from its original form by requiring directors to assess potential harm to people and the biosphere in a similar vein to the health and safety act.
Lauder said the select committee outcome meant the country had “entirely missed an opportunity to hold companies to a higher level of accountability” and that it was a win for shareholder primacy.
The notion of maximisation of profit being the sole best interest of a company is a neo-liberal idea introduced by the economist Milton Friedman more than half a decade ago and was a popular (but far from the only) interpretation of the relevant paragraph of New Zealand’s Companies Act.
In March, Chapman Tripp and The Aotearoa Circle released a legal opinion that the current context of exercising reasonable care and acting in the best interests of a company included identifying and managing nature-related risks to their businesses, including loss of pollinators, wildlife and wetland degradation.
The legal opinion said business decisions made in ignorance of nature-related risks resulting in financial loss could be open to legal action.
