The Duty to Promote the Success of the Company: Is it Fit for Purpose?

Abstract

There are various reasons that have been given for the financial crisis hit much of globe nearly three years ago. One appears to be that there were problems in the corporate governance of financial institutions and other companies. Intrinsic to corporate governance is the accountability of directors. One mechanism that makes directors accountable is the provision of duties imposed on them by the law. This paper examines one such duty, namely that provided by section 172 of the Companies Act 2006, which only became operative on 1 October 2007 and which was subject to significant comment and debate prior to its final enactment, and has been subject to significant academic comment since, both in the UK and the US. The duty is probably the most wide-ranging duty of the general duties that are contained in the Companies Act, and clearly the most difficult to interpret at this stage. In light of the events of the financial crisis that began some three years ago, and which is still unravelling this paper assesses whether the duty provided for under s.172 is fit for purpose. Is the duty likely to fulfil its purpose, as determined by the legislature, and will it prove to be effective in dealing with the aftermath of the crisis and provide the necessary potency in regulating how directors act for the future, so that the chances of another financial meltdown does not occur? In the process of examining s.172, the paper argues that it is not fit for purpose. It is submitted that the provision does not fulfil the aims the Government had for it, and we cannot have any confidence that it is going to address the problems with directorial actions that have come to light in the wake of the financial crisis.