Public concern about shareholders who “regard their shares as betting slips to be traded for short term benefit” as a member of the House of Lords put it to me the other day reached fever pitch during 2009. That is not surprising given that corporate greed resulted in the international banking crisis and a burden of £4,350 on every family in the country. That may seem a remote issue to many people in Penarth but it has an implication for every one of us. That is why I took it so seriously when I was given responsibility for Company Law reform in 2005 and it is why I am a member of the Corporate Responsibility group here in the House of Commons.
But laws rarely prevent what they forbid The 2006 Act was clear about the responsibility of directors. I’ve asked a number of speakers include ding the Governor of the Bank of England “how are you approaching the issues of strengthening the culture of how directors behave? And they always try to answer a different question from the one I asked!
This week I was pleased to hear Ian Lucas – a Welsh MP who is now the minister – stress behaviour of directors and shareholders rather than relying on legal changes and regulation. The 2006 Companies Act makes one thing clear: those who have argued over the years that the responsibility of directors is to make the biggest bucks for their shareholders as quickly as possible, are wrong.
The law now makes it clear that the responsibility of directors is to the long-term profitability of the company. The key concept is sustainable profitability which means that to be successful the company has to take account of issues like the wider environment and taking employees and partners with you.
It’s the common sense approach that has always been applied by the best directors in the best businesses in both the company and mutual sector. Old fashioned? Well, common sense has always been regarded as old fashioned.