Chapter 7 Directors' Duties - alastairhudson.com

factors. The subsection opens with the verb “must” and ends by saying that “in doing so”
regard is to be had to the six factors. Therefore, it is suggested that the verb “must” qualifies
the entire provision and so requires that the six factors are considered, even if the directors
decide that they are not of overriding importance in any given context. This is important
because, if the directors are required to consider these factors, then those factors become
(arguably for the first time) issues which directors are compelled to consider. Secondly, the
prefatory words in s.172(1) make it clear that these factors should be considered “amongst
other” factors not included on the list. Consequently, the directors may establish what in their
professional judgment is most likely to promote the success of the company. In that sense, the
legislation encapsulates the principle set out by Jonathan Parker J in Regentcrest Ltd v
Cohen 44 to the effect that the court will not substitute its view of what the directors ought to
have done for what the directors actually did do, because the power and the responsibility
rests with professional directors to make their own decision. What the directors must be able
to do, it is suggested, is to justify the actions they have taken or not taken as being
sufficiently likely to promote the success of the company at the time. This idea is mirrored in
the opening words of s.172(1) to the effect that “a director of a company must act in a way
which he considers … would be most likely to promote the success of the company”:
therefore, each director individually bears a responsibility as well as holding a power (It is
suggested that this chimes in with the requirement that each director exercise independent
judgment (considered below) in that each director has this power and responsibility.) Thirdly,
each director must be acting in good faith in supposing that a given course of action will
promote the success of the company. Each provision is considered in turn. It should be
recalled that s.172(1) places the benefit of the members as a principal aspect of the success of
the company, as discussed above.
The six factors
First, it has long been a complaint among radical economists that capitalist markets are
orientated too closely around short-term considerations. In stock markets the key determinant
for much investment activity is the return that is generated on each share by way of dividend
in each financial year. Therefore, to ensure easy access to capital, there is pressure on
management to maximise short-term earnings per share at the expense, it is said, of the longterm
health of the company and of the economy more broadly. Therefore, the first factor is
“the likely consequences of any decision in the long term”. This chimes in with the concerns
of the Blair-Brown administrations, being social democratic, approximately left-of-centre
governments, to ensure investment for the longer term and the operation of companies for the
longer term benefit of the economy and all involved.
Second, the traditional matrix of English company law focuses on the rights of the company,
the rights of the shareholders and the duties of the directors. No-one else had a right to be
considered. In practice, management would consider the need for good industrial relations
44 [2001] 1 B.C.L.C. 80 at 105b. See also Re Smith and Fawcett Ltd [1942] Ch. 304.
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