The GC100, being the association of general counsel and company secretaries working in UK FTSE 100 companies, has issued guidance on the practical interpretation of section 172 of the Companies Act 2006. This section imposes a general duty on directors to act, in good faith, in a way they consider would be most likely to promote the success of their company for the benefit of its members as a whole. Factors which will affect the success of the company include the interests of the company’s employees, the needs of its customers, and relationships with suppliers and other stakeholders. Directors also need to consider how the actions of the company affect the community and the environment, and the company’s reputation. These factors constitute a non-exhaustive list of matters that require consideration.
The guidance aims to provide directors with practical help in interpreting their section 172 duties rather than offer legal advice. It sets out five specific things to help directors embed section 172 in their decision making:
- Strategy: reflect the section 172 duty when setting and updating the company’s strategy.
- Training: establish and attend training courses on induction to the board, with ongoing updates on the section 172 duty in the context of directors’ wider duties and responsibilities.
- Information: consider, and arrange to receive, the information needed on appointment and going forward to help carry out the role and satisfy the duty.
- Policies and processes: put in place policies and processes appropriate to support the company’s operating strategy and to support its goals in the light of the section 172 duty.
- Engagement with stakeholders: consider what should be the company’s approach to engagement with employees and other stakeholders for the company, whether through board engagement or wider corporate engagement.
Within all of this, there is one key principle, namely the culture of the company. The guidance recommends that directors consider how to embed in the habits and behaviour of the board, management and employees, a culture which is consistent with the company’s goals in relation to stakeholders, whether employees, customers, suppliers, local communities, the environment or others affected by or engaging with the company’s activities.