What, ultimately, is a company limited by shares for? Is it to make as much money as possible for its shareholders? Or does it have a wider purpose, to act for the benefit of the environment, its employees, and society more generally? And which of these aims should its directors be duty-bound to take into account?
Those are the questions at the heart of a Private Member's Bill spearheaded by the Liberal Democrat MP Martin Wrigley. The Bill aims to amend section 172 of the Companies Act 2006 so as to require directors to act in a way that promotes not just the success of its members, but also the environment and its employees.
Current situation
At present, section 172 imposes a duty on company directors to act in the way that they consider "in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole" [emphasis added]. In doing so, they must "have regard" to various factors, including the likely long-term consequences of a decision, the interests of the company's employees, and the impact of the company's operations on the community and the environment. But ultimately, it is the duty to maximise shareholders' interests that is paramount.
The Company Directors (Duties) Bill, which had its First Reading on 21 October 2024 and its Second Reading is scheduled to take place on 27 February 2026, aims to broaden the scope of this duty. Essentially, the wording of section 172 would be amended to require directors to act in the way that they consider "in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, the environment, and the company's employees" [emphasis added], with "the environment" being defined as both the natural and social environments. The factors to which directors must then "have regard" would then largely remain unchanged. The Bill would, however, also require non-medium-sized companies to prepare a statement of the steps taken by the directors to comply with those duties.
During a short debate on 4 July 2025 in the House of Commons, Mr Wrigley opined that the current "overriding duty" to "maximise shareholder interest" was "outdated [and] has created a culture in which short-term financial performance overrides long-term sustainability". In contrast, he argued, the Bill would require directors to "balance the needs of shareholders with those of employees and the environment, thereby building better and more sustainable business".
What next?
The current Labour government has been clear that it will not support this Bill, which means that it is unlikely to become law. However, the Parliamentary Under-Secretary of State for Business and Trade, Justin Madders, announced that he intends to engage with Mr Wrigley about the Bill's provisions in future. It is possible, therefore, that the Bill may presage a future amendment to section 172 in similar terms, but by a different legislative route.
If so, then it could have significant ramifications for claims against directors for breaching those duties. Company directors can already face various types of claim alleging breach of duty, such as unfair prejudice petitions, derivative claims, and regulatory action, where they are found to have acted in a manner that is not in the interests of the shareholders or unfairly prejudices the interests of one or more members. Importantly, in such claims the directors are personally liable and are not protected by the "corporate veil" of the company.
The widening of the duties contained in the Companies Act 2006 would represent a significant change. It is likely that it would lead to more claims against directors: for example, where a decision was alleged to have disadvantaged the company's employees, or to be damaging to the environment (whose definition would be broad enough to mean, essentially, the interests of society in general). This could conceivably mean directors being required to make highly subjective judgement calls as to whether a proposed action was in the interest of wider society or of the company's employees; and, by the same token, the courts would need to determine what discretion they would have in doing so.
In the short term, the changes envisaged by the Bill are unlikely to become law. However, company directors should be aware that a move away from the traditional norm of shareholder primacy is a distinct possibility in future, and of the increased scrutiny of their decisions that this would bring.
