Below please find key takeaways from a recent ESG panel hosted by Teneo UK featuring guest speakers, John Allan, Chair of Tesco and Barratt Developments and Vice President of the CBI; Vindi Banga, Senior Independent Director, GSK and Partner, Clayton, Dubilier and Rice; Tracy Blackwell, CEO, Pension Insurance Corporation; Bruce Duguid, Head of Stewardship, Hermes Investment Management; and Andrew Hill, Managing Editor, Financial Times, for an important discussion on Section 172 and the era of stakeholder capitalism.
- Section 172 of the Companies Act states that directors must take account of stakeholder interests and the long-term in promoting the success of the company. It was introduced in 2006 but it is only since 2019 that large companies (including private) have had to include a statement in their ARA explaining how they have done this during the year.
- Our panellists agreed that the impact of S172 has been overwhelmingly positive, encouraging good companies to be bolder in taking decisions that are not in the short-term interests of their investors when the directors believe that is the right thing to do, and nudging less forward thinking boards in the right direction.
- S172 needs to be deeper than just saying what is happening but reporting can only be as good as the substance behind it. It’s critical that management teams and boards think about their different stakeholders in how they run the business. Too many companies are missing the opportunity because they are still focussed on the short-term and see S172 as a reporting exercise.
- Investors – in both public and private markets – have undergone a radical transformation in the last few years and are now asking significantly more questions about ESG, broader stakeholder interests and purpose. The best companies welcome this additional scrutiny and the opportunity to explain their thinking.
- Purpose is key concept. All companies should articulate clearly what they are there for and expect to be held to account on this by their stakeholders. While a company’s purpose might change over time, it should serve as an important aligning principle all the way down in organisations to help people make the right decisions.