UK: Companies Act is law but not victory

Although the Companies Act, that has become law as of October 1st 2007, has been hailed by many as the ?biggest shake up? in UK company law in 150 years NGOs are quick to warn against early cries for victory.

The Act, that has 1,300 sections, is estimated to be the largest to ever hit the statute books and overhauls case law governing how firms are created, run and wound down. Of particular importance are the new responsibilities it contains for how businesses handle environmental matters, employees and social and community issues.

?This act will help ensure Britain remains one of the best places in the world to set up and run a business? said the secretary of state for trade and industry Alistair Darling. ?It makes sure the regulatory burden on business is light touch, promotes shareholder engagement and will help encourage a long-term investment culture in the UK?.

But campaigners are not convinced that the Act will result in real changes. ?This gets us closer to the goal of corporate accountability? commented Jenny Ricks, corporate campaigner at ActionAid ?But it is a first step. Corporate accountability is still seen as an add-on to the functioning of the economy. If the government is to live up to its commitment to fighting poverty and climate change, we need to make sure that ethical business practices become central to trade, investment and development policy – and that strategy is joined up across government.?

The Act that has just come into force requires, among other things, a statutory statement of directors duties and responsibilities that includes promoting the long term success of the company while taking into account the environment, the community and employees. It will also become much easier and clearer for shareholders to make a derivative claim to sue directors on behalf of the company.

According to campaigners, however, the Act "lacks the teeth to make businesses live up to their obligations". One of the main criticisms voiced by campaigners has been that the new rules do not offer official help to meet the Act?s requirements nor does it ensure that companies be held accountable for violating human rights or for their impact on the environment and the wider society.

The Corporate Responsibility Coalition (CORE), that works to make changes in UK company law to minimise companies negative impacts and includes among its long list of members NGOs of the likes of WWF, Amnesty International and Action Aid, wrote a letter to the Prime Minister calling for more action and highlighting the issues that the Act has failed to address. They have also published a guide indicating how best to implement the Companies Act (download available above).

More info:
www.corporate-responsibility.org