Senior regulator emphasises directors’ duty to act for benefit of the company’s members as a whole
In a speech on 6 October 2011, Baroness Hogg, the chairman of the Financial Reporting Council, reminded directors – and regulators and major shareholders – of two core principles of company governance:
“First, all board members have equal responsibilities as directors. The law makes no distinction between executive and non‐executive in terms of duties owed to the company, although in practical terms the nature of their contribution will be different.”
“Second, this duty requires all directors to consider the company’s “members as a whole”. They must act to promote the success of the company, not in their own or somebody else’s interest, or in the narrow interest of one particular shareholder. This overarching requirement should influence directors’ actions and should help them set priorities…”
That the chief UK corporate governance regulator saw it necessary to make this reminder of basic principles has been triggered – as Baroness Hogg acknowledges in her speech – by two recent challenges to good governance:
- The regulatory response to the financial crisis, which has seen regulators such as the Financial Services Authority increasingly assert their powers over companies they regulate, to the extent of questioning board strategy and decisions.
- The listing of some companies on the Main Market of the London Stock Exchange, such as ENRC, with dominant shareholders who may be seen as unduly influencing board decisions. (The behaviour of ENRC’s principal shareholders was described by one director on his resignation as “more Soviet than City“.)
On the topic of controlling or dominant shareholders, Baroness Hogg added the reminder in her speech that:
“Incidentally, a director “representing” a dominant shareholder has the same duty to promote the success of the company for the benefit of members as a whole as an independent director, whose concern may be to ensure that the dominant holder does not trample over the interests of minorities.”
Friendly Corporate PSL
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