Capitalist attitudes have shifted considerably in the past 30 years, but the governing legislation has not moved with it
The idea of reviewing the three-decade old Companies Act was raised by the Institute of Directors (IoD) in the context of the Directors Duties Amendment Bill, which is going through the select committee process.
The bill seeks to clarify the Companies Act 1993 to say directors “may” consider Te Tiriti o Waitangi, reducing environmental impacts, upholding ethical behaviour, the interests of the wider community and fair employment practices when determining the best interests of a company.
Addressing the economic development, science and innovation select committee on Monday, IoD governance leadership centre general manager Guy Beatson, who said he was ambivalent about the proposed legislation, suggested a review of the Companies Act.
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“We’ve observed that this is the latest in a long line of tinkering that’s gone on with this piece of legislation over the last 30 years,” he said.
“There’s not really been a fundamental review of the underpinnings in terms of the governance thinking and a more thoroughgoing review of the legislation with people with both legal and governance expertise to advise on a more fundamental change to this part of corporate governance is necessary.”
The idea of a substantial review could be aided by the Legislation Design and Advisory Committee recommending the bill not go ahead because of its uncertain purpose and interaction with existing legislation.
Speaking to Newsroom after the committee, Beatson said the environment the Companies Act sat in had changed over the three decades, without incentivisation or reflection of those attitudes.
Beatson suggested something akin to the 2009 Tax Working Group, a process Treasury participated in but was ultimately led by practitioners and academics, a lasting legacy of which was a rebalance in the mix between GST and income tax (responsible for the GST rate shifting to from 10 percent to 15 percent).
Rob Campbell, one of New Zealand’s highest-profile businessmen and chair of the Environmental Protection Authority and Te Whatu Ora Health New Zealand, said he would welcome a review of the act.
“It wasn’t a radical innovation at the time. Events have changed and expectations have changed a lot in the period since.
“I do think occasionally you’ve just got to go back and have a really fundamental look at things, and this is an area that would benefit from doing so.”
Campbell said the issue dealt with by Labour MP Duncan Webb’s proposal was well overdue for review – though Campbell would like to see it go further and require directors to take those non-profit factors into account.
He said the current legislation had a monocultural emphasis and a modern piece of legislation should also enable and take a view on community cooperative and Māori forms of organisation.
“There has been a fair amount of tinkering to corporate law as various court decisions or practical difficulties have come along.
“But the basic form hasn’t substantively changed, not just for the last 30 years, but even that was a pulling together of concepts, so New Zealand would benefit from having a fresh look at how we think corporate commercial activity should be conducted and what should be the principles of it.
“It would be good to go back to basics.”