Stakeholder governance: A call to review directors’ duties

  • Publications and reports

    30 July 2021

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The world of business is experiencing a perfect storm – the pandemic, climate change and social inequality are all presenting business leaders with some of the most extreme economic and social dilemmas in generations.

The importance and need for robust corporate governance and leadership are critical to navigating the challenges ahead.

The current environment has accelerated the need for boards to question and re-examine:

  • how their organisations are operating and for what purpose; and
  • who they serve and why.

As stewards and kaitiaki of company value, boards are increasingly taking a more holistic view of how their companies create long-term value, and they are giving greater attention and recognition to stakeholder interests (including employees, customers, suppliers, communities and the environment).

Directors must act “in the best interests” of their company but the challenge is defining exactly what this means. For example, is it the primary responsibility of the board to look after the interests of shareholders and maximise shareholders’ profits, or should directors consider the interests of all stakeholders to discharge their duty of acting in the best interests of the company?

This question was tested recently when some of New Zealand’s largest companies claimed significant wage subsidies from the Government, and later posted a profit for the year. Although such companies were entitled to receive the wage subsidy under the Government’s criteria, many confronted public backlash and were faced with a dilemma of whether to pay back the wage subsidy. Those boards had to consider the best interests of their company in light of stakeholder reaction. This included potentially repaying the subsidy against prioritising shareholder returns.

About this paper

Stakeholder governance is one of the top issues in global governance. This paper outlines the evolving corporate governance landscape in relation to stakeholders including:

  • significant developments and trends around the world and in New Zealand; and
  • relevant law in New Zealand and guidance for boards.

The paper concludes with a call for the Government to review the framework for directors’ duties in the Companies Act 1993.