Summary

1. The Company Directors (Duties) Bill introduces a mandatory stakeholder approach, requiring directors to promote the success of the company for shareholders, employees, and the environment.
2. This amendment to section 172 Companies Act 2025 marks a significant shift from shareholder primacy in UK company law.
3. Directors will have legal duties to consider employee wellbeing and reduce environmental harm when making decisions.
4. Global examples, such as New Zealand’s short-lived ESG reforms, show that legal changes must be supported by business confidence and clear regulatory guidance.
5. Because the Bill is a Private Members Bill, it is unlikely to become law. However, this raises questions about how serious the Government is on getting companies to support environmental and employment reforms and benefits.

While much of the public attention remains on economic forecasts and geopolitical headlines, one piece of draft legislation has been quietly introduced in Parliament which has the potential to reshape the foundations of UK company law. The Company Directors (Duties) Bill could, if it receives Royal Assent, permanently shift the focus of UK companies from shareholder returns alone to a broader responsibility that includes people and planet.

The Bill proposes an amendment to section 172 of the Companies Act 2006, to require directors to balance their duty to promote the success of the company with duties in respect of the environment and the company’s employees.

What is the Company Directors (Duties) Bill?

The Bill was introduced by Liberal Democrat MP Martin Wrigley as a Private Members’ Bill and had its first reading in the House of Commons on 21 October 2024. At the heart of the reform is section 172, which currently instructs directors to promote the company’s success for the benefit of its members (i.e. shareholders). The new wording will require directors to act for the benefit of members, employees, and the environment.

This means directors will have to factor in environmental harm and employee wellbeing as part of their decision-making processes. For example:

• Investments that damage ecosystems may be legally challengeable, even if profitable
• Redundancy decisions must account for the broader impact on worker wellbeing
• Long-term planning must include environmental and social considerations

The Bill gives legal weight to what was previously just good practice. This change in the directors’ legal obligations would increase pressure on boards to document their reasoning, seek stakeholder input, and justify decisions with reference to a wider set of outcomes.

However, Justin Madders, Parliamentary Under-Secretary of State for Employment Rights, Competition and Markets, has stated that the Government will not support the Bill, which means it is unlikely to every receive Royal Assent. But Mr Madders did say in Parliament that he wishes to speak further to Mr Wrigley regarding reforms to section 172.

Does Section 172 provide for environment and employee considerations?

Mr Madders said the following in Parliament:

“We are really talking about section 172 of the Companies Act 2006, which the Bill seeks to amend. That is a key part of the directors’ duties framework, which was developed in the light of the major company law review commissioned by the previous Labour Government. I want to be clear that section 172 as it stands already places a legal duty on directors to have regard in their decision making to the interests of employees and the impact of the company’s operations on the community and the environment. It also requires directors to consider a range of other factors, including the impact of any decision on the long-term success of the company.”

The UK’s existing model of enlightened shareholder value allows directors to consider broader interests, but only if doing so supports shareholder value in the long term. In reality, I find that shareholder returns often continue to dominate boardroom priorities. In my experience most company’s concentrate on the commercial aspect of the business, ensuring that there is sufficient money generated to pay wages etc.

Lessons from Overseas: New Zealand’s Shift – and Retreat

The UK is not the first country to attempt stakeholder-focused reforms. In 2023, New Zealand amended its companies legislation to allow directors to consider ESG factors alongside profit. It was seen as a progressive move toward ethical capitalism.

However, within a year, the government began reversing course. Business groups criticised the reforms for introducing uncertainty. The reaction to ESG duties for company directors in New Zealand revealed concerns about inconsistent interpretations, lack of guidance, and the chilling effect on risk-taking.

Ultimately, stakeholder considerations were seen as too vague to enforce reliably. The new legislation proposed a return to shareholder focus, demonstrating that legal theory alone cannot change how businesses operate without strong institutional support.

Comparative directors duty legislation globally reveals a mixed picture. Delaware law in the United States remains firmly shareholder-focused. Germany’s corporate governance model gives employees a voice through co-determination but does not give equal legal weight to their interests. Canada and Australia are trialling ESG frameworks but have not imposed statutory duties.

The biggest issue with enshrining ESG trends into law is that because there is a real prospect of criminal and/or civil liability, it disincentivises directors to take risks. And risk-taking goes hand in hand with growth, something that most of the developed economies are short of at present.

Wrapping up

Considering the impact on the environment, society, and employees when making decisions should not be viewed as choosing between profit and purpose. I know of some very profitable companies who do consider the impact of decisions upon employees and the environment. This results in better employee retention, thus avoiding loss of expertise and recruitment costs, and the ability to attract incredibly talented staff who want to work with a sustainable business.

Frequently Asked Questions (FAQs)

What is the Company Directors (Duties) Bill?
It is a proposed piece of legislation that would amend section 172 of the Companies Act 2006. It requires directors to consider employees and the environment equally alongside shareholders when making decisions.

How is this different from current UK company law?
Currently, directors operate under a model called enlightened shareholder value, which permits consideration of other interests only if it supports shareholder benefit. The new law requires directors to give equal consideration to all three groups.

What should directors do to prepare?
Although the Bill is unlikely to become law, it is a good idea for directors to review their governance frameworks, update compliance policies, and ensure that ESG risks and stakeholder impacts are factored into all major decisions.

How does the UK’s proposal compare with New Zealand’s reforms?
New Zealand introduced similar ESG-focused directors’ duties in 2023 but faced business pushback and legal uncertainty. The reforms were later rolled back. The UK can learn from this by ensuring clarity and business engagement.

Will directors face new legal risks?
Yes. If such a law is passed in the future, directors could face challenges from stakeholders other than shareholders, including employees or environmental groups. Clear documentation, robust policies, and legal advice will be essential.

To find out more about how we can help you deal with or avoid directors’ disputes, info@43legal.com or phone 0121 249 2400.

The content of this article is for general information only.  It is not, and should not be taken as, legal advice.  If you require any further information in relation to this article, please contact 43Legal.

Melissa Danks is the founder of 43Legal. She has over 20 years’ experience as a solicitor working within the legal sector dealing with issues relating to risk management, dispute resolution, and advising in-house counsel in SMEs and large companies. Melissa has extensive expertise in providing practical, valuable, modern legal advice on large commercial projects, joint ventures, data protection and GDPR compliance, franchises, and commercial contracts. She has worked with stakeholders in multiple market sectors, including IT, legal, manufacturing, retail, hospitality, logistics and construction. When not providing legal advice and growing her law firm, Melissa spends her time running, walking in the countryside, reading and enjoying downtime with close friends and family.