The 'Enlightened Shareholder Value' in UK Companies Ten Years Later: What the European Directive N. 2014/95/EC Can Do

Abstract

Few provisions have been more debated and criticised than Section 172 (1) of the UK Companies Act addressing directors' duties to the company aiming at recognising a corporate social responsibility by involving the consideration of various stakeholders' interests and needs within the public company. In particular, problems of actual effectiveness and enforceability of the provision have been highlighted testified by the paucity of case law so far. The paper after shortly recollecting main critiques and commenting the case, The Queen on the application of People and Planet vs. HM Treasury, addressing the interpretation and application of Section 172 (1) CA 2006, argues that the duty was conceived to acquire its force not through the threat of litigation but through increased disclosure obligations. Despite the critiques and the skepticism around the provision it is argued that after the European Directive N. 2014/95/EU, adopted on 22nd October 2014, to coordinate national provisions on disclosure of non-financial information, Section 172 (1) CA 2006 has been brought to new life and will represent a good example to be followed by other jurisdictions. The Directive requires large companies to prepare a non-financial statement containing information on environmental, social and employee-related matters, respects for human rights, anti-corruption and bribery matters, describing policies, outcomes and risks related to those matters and shall be transposed into domestic jurisdictions not later than 6th December 2016 and be applied from 2017. However only for UK companies, domestic legislation in Europe requires directors to pursue stakeholders’ interest if this may lead to the success of the company while the other jurisdictions do not expressly contemplate, require or even permit directors’ to have regard of stakeholders’ interests in discharging their functions even though large corporations in Europe have been, for some years now, recognising the potential relevance and importance of non-financial disclosures for the market and key stakeholders; 95% of them worldwide are producing the so-called sustainability report containing information on social, environmental and corporate governance factors (i.e. ESG). The Directive N. 2014/95/EU through disclosure fosters consideration by boards of directors of stakeholders’ interests in assessing how to manage large companies, bringing the new factors into internal policies and procedures. At this point member states should start thinking of how to change provisions regulating directors’ duties to the company; it is likely and desirable that many of them will follow the UK forerunner provision.