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Protection of stakeholders - Coggle Diagram
Protection of stakeholders
Company directors have a number of statutory, fiduciary and common law duties and responsibilities
The directors do need to consider the impact on other stakeholders but those interests do not take precedence over the interests of the members except in circumstances where a winding up or compromise with creditors is being contemplated
Anyone with an economic interest in the company is clearly a stakeholder but there are others too
Stakeholders often have different and sometimes competing interests in a company
Stakeholders cna be divided into the following broad categories
Members
Directors
Creditors
Suppliers
Local community
Employees
The environment
The government
The main protection for many stakeholders is contained in CA2006 s.172 supported to some extent by specific provisions in the IA1986
CA2006 s.172 does note the primacy of directors acting in the inters of the companys members as a whole but that they should have regard to the interests of other stakeholders
Six Wates Principles
Purpose
An effective board promotes the purpose of a company and ensures that its values, strategy and culture align with that purpose
Composition
Effective board composition requires an effective chair and a balance of skills, backgrounds, experience and knowledge with individual directors having sufficient capacity to make a valuable contribution
Responsibilities
A board should have a clear understanding of its accountability and terms of reference. Its policies and procedures should support effective decision making and independent challenge
Opportunity and risk
A board should promote the long term success of the company by identifying opportunities to create and preserve value and establishing oversight for the identification and mitigation of risks
Remuneration
A board should promote executive remuneration structures aligned to the sustainable long term success of a company taking into account pay and conditions elsewhere in the company
Stakeholders
A board has a responsibility to oversee meaningful engagement with material stakeholders including the workforce and have regard to that discussion when taking decisions. The board has a responsibility to foster good stakeholder relationships based on the company's purpose
The largest of companies having either more than 2000 employees or turnover in excess of £200m and a balance sheet of more than £1b will be required to make a new corporate governance statement under amendments to the 2008 Regulation as follows
The directors must include a statement of coproate governance arrangements which states
Which corporate governance code, if any, the company applied
How the company applied any corporate governance code
If the company departed from any corporate governance reported, the respects in which it did so and its for so departing
If the company has not applied any corporate governance code for the financial year, the statement of corporate governance arrangements must explain the reasons for that decision and explain what arrangements for corporate governance were applied for that year
Of all the groups of stakeholders members are the best protected other than once a company reaches the position where insolvency is very likely or that tipping point has been exceeded
Employees have additional protection in terms of other legislation including general redundancy rules as well as priority of payment of unpaid wages in insolvent liquidations
Directors protection is largely afforded by virtue that they are responsible for managing the affairs of the company and are best placed to take mitigating action, although exposed to potential legal action by members, directors can protect themselves except in instances of fraud and deliberate wrong doing by taking out indemnity insurance
Creditors main protection comes from their ability to withhold future services pending payment for past services being able to sue the company to make settlement and that in the event of a winding up, assets are applied to meet their debts. The priority of payments in a liquidation does not favour the majority of da¥ to day trading creditors who are unsecured
The need to consider the impact of the company's operations on the local community and the environment highlight the need to have a thought out corporate social responsibility policy, These duties also highlight the balance to be struck between members and stakeholders and that the balance need not be restricted to purely financial or economic factors