Stripped down company law seen as threat to environment

Government has described the draft Company Law Reform Bill as providing ‘sweeping changes to simplify and improve company law’ that could save businesses up to £250 million a year.

The rewrite aims to make the legislation easier to understand and more flexible – especially for small businesses which are expected to save some £100 million annually if the measures are adopted.

But Friends of the Earth has accused the Government of putting the interests of big business before those of individuals and the wider environment.

Amongst its provisions, the Bill includes the first ever statutory statement of the legal obligations placed on company directors.

Friends of the Earth, in coalition with trade unions and other environment, human rights and development organisations, has been calling for company directors to be given a legal “Duty of Care” to communities and the environment, as well as for victims of corporate wrongdoing to be given legal rights of redress.

The pressure group says this would meet with commitments the Government has already made through treaties on sustainable development.

These call for economic, social and environmental interests to be integrated, rather than one interest placed above another.

But the Government’s Company Law Reform Bill will require directors to

put profits first and only require them to “have regard to” communities

and the environment.

FoE claims this requirement is made even weaker by the Bill because it can only be enforced by shareholders while workers, communities, and others affected will not be able to bring actions even when they are the victims.

“This Government promised us joined up thinking on the environment, but

it looks like they are far more interested in putting the interests of

big business first,” said Craig Bennett, FoE’s senior corporate campaigner.

“Why does the Government only want directors to think about their social and environmental impacts, rather than do something about them?

“How can it offer justice to shareholders but deny it to the people whose lives are most directly affected by corporate irresponsibility?

“This Company Law Reform Bill represents a unique opportunity to make

UKplc fit for the 21st Century.

“But the current draft fails to do this and ignores the economic damage caused to communities who suffer the impacts of corporate negligence and malpractice.”

But the Government says reforms are necessary to help ensure that Britain remains one of the best places in the world to set up and run a business.

It argues that the Bill will keep the regulatory burden on business to a minimum, promote shareholder engagement and encourage a long-term investment culture.

Trade and Industry Secretary Alan Johnson said: “An effective framework of company law and corporate governance will promote enterprise and help stimulate investment in the UK.

“We have focused throughout on making the law more accessible and ‘thinking small first’.

“The Bill makes an important contribution to our better regulation agenda.

“These measures also represent a significant step forward in ensuring that our company law remains up to date, flexible, and accessible for everyone who uses it.”

“We have consulted every step of the way. Our company law is central to corporate activity and this important updating will provide a tremendous boost for British businesses, large and small.

“We are determined to make sure that our law keeps step with economic needs.

“This Bill will help ensure that Britain remains a prime place for incorporation.”

By Sam Bond