The Companies (Directors Duties) Amendment Act 2023 is now law

This amendment to the Companies Act 1993 took effect on 7 August 2023, against the advice of the Legislative Design and Advisory Committee, the Office of the Clerk, the Ministry of Business, Innovation and Employment (MBIE), and the submissions of the New Zealand Law Society and many others opposed to the original private member’s Companies (Directors Duties) Amendment Bill 2021 (the Bill) and subsequent amendments.  

The Act amends section 131 of the Companies Act 1993 (the duty of directors to act in good faith and in the best interests of the company) by adding an additional subsection to “clarify” that directors may consider a wide number of factors other than financial gain while making decisions.

The original Bill listed five non-exhaustive environmental, social and governance (ESG) factors that directors may consider while making decisions, including the principles of te Tiriti, environmental impacts, good ethical behaviour, being a good employer and the interests of the wider community.

The Bill was amended by the Economic Development, Science and Innovation Committee on 8 May 2023, and the Supplementary Order Paper dated 25 July 2023 of the Labour MP with responsibility for the Bill, Camilla Belich.  

The Select Committee couldn’t agree that the original Bill should be passed, but recommended amendments to it all the same. It completely removed the original Bill’s reference to the five non-exhaustive ESG factors, and simply provided that directors may consider matters other than the maximisation of profit.

The Belich SOP amended the Committee version to add examples, providing the final wording that has now been passed: “To avoid doubt, in considering the best interests of a company or holding company for the purposes of this section, a director may consider matters other than the maximisation of profit (for example, environmental, social, and governance matters).”

In our submission on the Bill in December 2022, the IoD welcomed the focus on the importance of corporate governance in achieving outcomes for shareholders, stakeholders and the wider community. While we supported the Bill’s intentions, we proposed a range of options that we considered better addressed the Bill’s objectives rather than the piecemeal, ad-hoc amendment approach now adopted, including:

• additional guidance, training and support materials to directors about what acting in the best interests of the company means in the modern corporate world
• an alternate proposal that company boards complete an annual “best interests statement”; and
• a thorough review of the Companies Act 1993 and other governance legislation.

The amendment now passed to the Companies Act 1993 is a very small change in relation to the wider policy settings and framework of the Act, and will have marginal impact.

The IoD repeats the request made in our earlier submission for the establishment of an independent Companies Act Working Group to complete a more substantial review of the policy settings and framework underpinning the Companies Act 1993 and other similar governance legislation.