*
Blog: Making Section 172 come alive

Directors' Blog: Peter Montagnon

Section 172 of the UK Companies Act 2006 has become a kind of code-word for corporate culture.

Mention it in a discussion on corporate governance and learned heads will nod wisely as if all we have to do is get Section 172 right and everything will then be fine.

In a few brief sentences, this piece of legislation manages to capture just about every relationship a company needs to interact smoothly with the society on which it depends for its social licence to operate. Yet this also depends on getting the balance right, and here the authorities seem to be missing a trick.

New regulations oblige companies to report on how they have addressed the requirements in Section 172 to take account of stakeholders, including customers, suppliers and the workforce when making decisions.

But they lay much less emphasis on two other important parts of the Section, which call on directors to recognise the desirability of the company maintaining a reputation for high standards on business conduct and of the need to act fairly as between different shareholders.

Indeed, the regulations focus particularly on suppliers, customers and the workforce. Companies must make detailed statements on highest subjects even where the directors do not judge the information to be of sufficient importance to be included in the Strategic Report for that year. The government says this gives "companies the opportunity to provide more information, for example, about their employee engagement decisions."

There is nothing wrong with this - except that the UK government is sending a clear, hopefully albeit unintentional, signal that arrangements for employees and other named stakeholders are more important than an overall reputation for high standards of business conduct.

This is odd because lax business conduct is at the heart of most corporate scandals. It was certainly true of banks during the financial crisis, which is why the UK now has a Banking Standards Board devoted to securing good conduct. It is true also in Carillion, the horse-meat scandal in the supermarkets, and Sports Direct. Indeed the list goes on and on.

If companies can embed high standards of behaviour, the chances are that this will lead them to make good decisions about the treatment of key stakeholders as well.

Companies which get this point and choose to report on conduct will be doing themselves a favour in terms of reputation as well as finally making Section 172 come properly alive.


Posted: 19/09/2018

IBE Blogs

Directors' blog: Peter Montagnon

An ethical approach moves AI from threat to opportunity, writes Peter Montagnon

Culture Club: Views my own

Katherine Bradshaw explores the ethical dilemmas of social media at work

Ethics and values are at the heart of a sustainable culture

Professor David Grayson, IBE's new chair, shares his thoughts on ethics and sustainability

Culture Club: Bringing your ethics training to life

Rozlyn Spinks shares some tips on what makes an effective scenario 

Research Hub: Changing attitudes to business

Linn Byberg looks at how millennials are changing business ethics

Research Hub: What were the hot ethical issues of 2018?

Simon Webley looks back on the the business ethics news stories of last year

Directors' blog: Trust in business is on the rise

Philippa Foster Back examines the results of IBE's public attitudes to business survey

Directors' blog: Making the FRC fit for purpose

Peter Montagnon asks some pertinent questions ahead of the Kingman review

Trust is the currency of ethics

Emmanuel Lulin, Chief Ethics Officer at L'Oreal takes a personal look at IBE's Ethics at Work survey


My Basket


There are no items in your basket

VIEW BASKETCHECKOUT

Support Us & Get Involved

Support the IBE
 
Contact the Institute of Business Ethics