Ethics and Section 172: key questions for informed board decision-making

Publication type: Board briefing
19 February 2020

Tags: Corporate governance

The aim of this Board Briefing is to help companies benefit from the new reporting obligation and to encourage them to go beyond legal requirements. It is intended to convince companies to reflect their values in decision-making and report on what they have done to define and embed appropriate standards of conduct across the organisation.

This board briefing offers practical guidance to help directors reflect on how they are fulfilling their duty under Section 172 (S172) and how they might report on this in their new Section 172(1) Statement. All UK companies qualifying as large under the Companies Act 2006 must include the statement in their strategic report for a financial year due in 2020.

Ethics and Section 172 unpicks the six elements of S172 and presents a dozen key questions for a director to consider, as well as a practical framework for good decision-making, based on ethical values.

The new reporting requirements have not changed the legal duty of 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”. However, they are designed to encourage companies to be more open about who their stakeholders are and how the interests of those stakeholders have been taken into consideration in board decision-making.

It is hoped that the reporting requirements will also encourage companies to review how they engage with their employees and other key stakeholders and to consider new ways of doing so.

IBE Board Briefing - Ethics and Section 172: key questions for informed board decision-making