DISCUSSION The real changes we need to focus companies on the long term

by Mark Goyder _______19th December 2016
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Commenting on The Times article from 14th December: Workers need businesses to succeed more than hedge funds do

Louise Haigh MP is right to argue that we need the Companies Act to prioritise the success of the company at large.

Perhaps wording that requires directors to “promote the success  of the company for the interests of its members (shareholders) as a whole”  (i.e. not just hedge funds or short-term opportunistic investors)? Or it could insist that directors have regard to the consequences of any decision on the company’s long-term performance? Or  insisting that they also consider the interests of companies employees,  suppliers and customers and impacts on the community and the environment.  That would surely be better than an exclusive  focus on shareholders alone.  But the fact is that all these are already what the law says today and has said since 2006.

Having been involved in getting the legal definition of duties changed 10 years ago, I am convinced that the answer for tomorrow lies not in any changes in wording. Rather we need to strengthen the forces that encourage companies to focus on their long-term purpose. Among other things that means rewarding those investors who want to be long-term stewards, and requiring larger companies to find an effective  way of engaging not only with employees but other stakeholders too, including, we would argue, employee advisory boards.

There is little  wrong with the words in the Companies Act. The challenge now is to bring them to life.

 

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