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  • Writer's pictureAndrew Davies

Could this be a leap forward in Aotearoa New Zealand company law?

We welcome a significant development in Aotearoa New Zealand this month with the introduction of a bill to parliament to amend the Companies Act to make it clear that directors, when acting in the best interests of the company, can choose to take into account wider matters than the financial bottom line.

The bill would permit a director, when determining the best interests of the company, to take into account recognised environmental, social, and governance factors, such as:

(a) recognising the principles of the Treaty of Waitangi (Te Tiriti o Waitangi):

(b) reducing adverse environmental impacts:

(c) upholding high standards of ethical behaviour:

(d) following fair and equitable employment practices:

(e) recognising the interests of the wider community.

Two men looking over papers and working in office

The notion of acting in the best interests of the company has been conventionally interpreted to mean simply delivering shareholder returns, above all other considerations. We can thank Milton Friedman for this. In reality, directors exercise judgment all the time, balancing sometimes competing interests and weighing short-term gains against long-term risks. Is it now accepted practice to consider the impact of climate risk. The rise of impact or purpose-focused business has also challenged the boundaries of what is in the interests of shareholders. The views of shareholders are also complex: many invest with broader outcomes in mind than simply short-term financial returns.

Importantly the permission expressed in the bill is stated as being needed to “avoid doubt” — a classic legal fix, as for an increasing number of businesses there is no doubt at all.

For many, including the growing community of Certified B Corporations in Aotearoa New Zealand, considering the impact of your business on wider stakeholders is not only necessary, but it makes your business better.

B Corp certification requires this accountability to stakeholders. In this way, Certified B Corporations are a glimpse of the future: one where all businesses strive to achieve a public benefit alongside profit and consider stakeholders in their decision-making.

Two women collaborating and looking at laptop screen

B Lab supports the thinking behind this draft bill. We support any move to see the culture and practice of business bend towards a model where business builds community and regenerates the environment — the conditions that we rely on for our economic system to thrive. However, this bill, while welcome, is not the start of an important conversation on the benefits of stakeholder capitalism. That evolution has been on foot for some time, with the growth of purpose and impact-led businesses globally and recognition of the decline of shareholder primacy by regulatory frameworks in many jurisdictions.

Aotearoa New Zealand has seen considerable progress to date. We support the Sustainable Finance Centre's 2030 Roadmap for Action and recognise the important work done by organisations including the Aotearoa Circle and the Sustainable Business Council in highlighting the need for action, and the benefits that can flow from business being a force for good. A recent whitepaper issued by the Institute of Directors explored the evolution of stakeholder governance in Aotearoa New Zealand, challenging many to recognise a clear shift taking place in the scope of directors’ duties.

The B Corp community is at its best when we use our collective power to change the rules of the game, and demonstrate what business as a force for good looks like. We will carefully consider the proposed legislation and will work with Certified B Corporations in Aotearoa New Zealand to prepare a submission in response. If you’d like to connect with us on this work, please get in touch.



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