Shareholder primacy: Is there a need for change

The discussion paper considers whether the duty of directors to act in good faith and in the best interests of the company, should be owed to a wider group of stakeholders. Our submission stated that while directors’ duties are owed to the company (meaning shareholders as a whole) Australia’s corporate law currently allows directors to take account of the interests of stakeholders other than shareholders.

In summary our comments were as follows:

• the duty of directors to act in good faith and in the best interests of the company as set out in the Corporations Act does not require amendment;
• it is unnecessary to change the law to permit directors to consider stakeholder interests that they can already consider;
• the duty to act in the best interests of the company provides flexibility and allows directors to consider and balance the interests of stakeholders. This in turn, promotes effective decision-making and accountability; and
• recommending that directors owe a duty to a wider group of stakeholders, is misconceived, unworkable and would be a retrograde step for Australia’s corporate law.

This submission has relevance to directors of all companies regulated by the Corporations Act 2001 (C’th) from small businesses through to ASX listed entities.