One of the fundamental director’s duties within the NZ Companies Act 1993 (‘the Act’) is to act in good faith and in what the director believes to be the best interest of the company. This has traditionally been interpreted to mean decisions should be aimed at maximising shareholder returns. In September 2021, an amendment was proposed to make it clear that directors of companies can consider a wide variety of factors, such as:
- recognising the principles of the Treaty of Waitangi (Te Tiriti o Waitangi),
- reducing adverse environmental impacts,
- upholding high standards of ethical behaviour,
- following fair and equitable employment practices, and
- recognising the interests of the wider community.
On 8 May 2023 the Select Committee recommended that the list above is not enacted, but instead replaced with the following:
“To avoid doubt, in considering the best interest of a company or a holding company for the purpose of this section, a director may consider matters other than the maximisation of profit”
This addresses submitters’ concerns that the original drafting of the bill may create inconsistencies within the Act, as well as confuse directors about their responsibilities. Further, some submitters felt that the law already allows a director to consider non-financial factors when deciding the best interest of a company.
We will wait to see what is ultimately enacted.