(1 day, 20 hours ago)
Commons ChamberRead Hansard Text Watch Debate Read Debate Ministerial Extracts
Martin Wrigley (Newton Abbot) (LD)
I beg to move, That the Bill be now read a Second time.
Under current UK law, company directors have one overriding duty: to maximise shareholder interest. This narrow, outdated legal framework of shareholder primacy has created a culture in which short-term financial performance overrides long-term sustainability. The Bill will amend section 172 of the Companies Act to change the duty of company directors by requiring them to balance the needs of shareholders with those of employees and the environment, thereby building better and more sustainable businesses. The Institute of Directors backs this change, which will empower directors to do the right thing for their business. It will drive the sustainable growth needed to turbocharge our economy and help to realise the Government’s ambitions for growth.
The Bill gives directors the legal clarity and freedom to make better, long-term decisions, moving away from the short-term drive of a quarter’s profits. Businesses focused on their stakeholders, not solely on shareholder returns, consistently outperform their counterparts. Last year, UK B corps increased their turnover by 23%, compared with the national average of 17%, and they saw a 9.6% increase in employee headcount, compared with a national decrease of 0.5%. Moreover, research conducted by Demos on behalf of the Better Business Act highlighted that a purpose-led economy would boost UK GDP by £149 billion.
It is clear that embracing stakeholder primacy improves financial performance. The law should encourage this, not obstruct it. It is time to change the law to follow the example of the thousands of businesses and organisations that have seen that better business works well. With this change, we can help to build better businesses and a better Britain.
The Parliamentary Under-Secretary of State for Business and Trade (Justin Madders)
I congratulate the hon. Member for Newton Abbot (Martin Wrigley) on introducing the Bill and on squeezing in his remarks under the wire. He made some important observations. Clearly, we do not have the time we would like to explore the provisions in more detail, but I understand that I will be engaging with him—
Justin Madders
I may have anticipated the hon. Member’s intervention; I will be engaging with him shortly on the Bill’s provisions. It is not a Bill that the Government will be able to support, but I do want to have further conversations with him about it. It is important that we recognise directors’ duties for what they are: a cornerstone of UK company law. They help to ensure that companies are run responsibly and, importantly, that directors act with integrity at all times.
We are really talking about section 172 of the Companies Act 2006, which the Bill seeks to amend. That is a key part of the directors’ duties framework, which was developed in the light of the major company law review commissioned by the previous Labour Government. I want to be clear that section 172 as it stands already places a legal duty on directors to have regard in their decision making to the interests of employees and the impact of the company’s operations on the community and the environment. It also requires directors to consider a range of other factors, including the impact of any decision on the long-term success of the company.