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Directors’ Duty under UK Law to Promote the Success of the Company during the COVID-19 Pandemic

Le 30 avril 2020, Philip Gavin s’est interrogé sur l’intérêt de l’article 172 du Company Act pour les administrateurs et dirigeants dans le contexte de la COVID-19 : « Directors’ Duty under UK Law to Promote the Success of the Company during the COVID-19 Pandemic » (Oxford Business Law Blog).

Extrait :

A nuance to director’s duties in the United Kingdom is the expansive statutory delineation of s 172, which endows numerous considerations for directors when acting to promote the success of the company for the benefit of members. Given the unique circumstances of the present-day commercial sphere and the more humanitarian demands being put to businesses, having a statutory foundation upon which to base non-traditional business strategies may assist effective decision-making and financial reporting.

The initial three considerations enshrined within s 172 are (a) the likely long term consequences of any decision, (b) the interests of employees and (c) the need to foster business relationships with suppliers, customers and others. These factors are of particular relevance for firms who sought justification for voluntary shutdown of businesses prior to the wider governmental shutdown.

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Where production changes become quasi-humanitarian in tone and companies internalise cost in the interim, directors may seek justification through s 172(1)(d) and (e), these being the impact on the community and the desirability of maintaining high business standards respectively.  Accordingly, directors can seek to frame these quasi-humanitarian efforts in long-term reputational terms, thereby engendering prospective communitarian goodwill.

Furthermore, as political pressure mounts, boards may evaluate reputational factors not simply in terms of market reputation, but also in terms of Governmental co-operation. This is particularly so where companies face increased intervention by public authorities through the Civil Contingencies Act. Comparatively, in a recent memorandum the Trump administration has attempted to exert control over the distribution of ventilators by the multinational conglomerate 3M. Cautious of such intervention occurring within their own enterprises, companies may shift business operations to such an extent to signal their compliance and co-operation with public authorities, thereby disincentivising the wholesale overrule of board discretion. 

Within jurisdictions with vaguer duties to act bona fide in the best interests of the company (Delaware, Australia, Ireland), directors may still engage in such quasi-humanitarian efforts. Nevertheless, utilising s 172 to steer directorial judgment may assist effective decision-making, and furthermore guide financial reporting, which mandates s 172 director’s statements.  Given that the tenor of 2020 reports will be likely dominated by COVID-19, UK directors will benefit from the homogenising structure of s 172 when making such disclosures in the coming months.

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