Why directors must be accountable to people and planet – not just profits

The traditional corporate governance model, anchored in the principle of shareholder primacy, is increasingly at odds with the realities of modern business and societal expectations. As climate change accelerates, social inequalities widen and stakeholder capitalism gains momentum, the narrow focus on maximising shareholder value appears not only outdated but potentially destructive. The time has come to fundamentally reform directors' fiduciary duties to explicitly include obligations toward environmental stewardship and broader stakeholder engagement.

The limitations of shareholder primacy

For decades, the corporate world has operated under the assumption that directors' primary –and often sole – fiduciary duty is to maximise shareholder returns. This doctrine, while providing clear guidance for decision-making, has created a system where environmental degradation, worker exploitation and community harm are treated as acceptable externalities in the pursuit of profit. The result has been a corporate landscape where short-term financial gains often come at the expense of long-term sustainability and social responsibility.

This narrow interpretation of fiduciary duty has proven particularly problematic in addressing environmental challenges. Directors operating under traditional fiduciary frameworks may feel legally constrained from making investments in environmental protection or sustainable practices if these initiatives don't provide immediate financial returns to shareholders. This creates a structural impediment to the kind of transformative change needed to address climate change and other environmental crises.

The business case for expanded fiduciary duties

Expanding directors' fiduciary duties to include environmental and stakeholder considerations is not merely an ethical imperative – it's a business necessity. Companies that fail to address environmental risks face mounting regulatory pressures, supply chain disruptions and reputational damage that can severely impact their long-term viability. Climate-related financial risks, from physical damage to stranded assets, pose material threats to shareholder value that traditional fiduciary frameworks struggle to address adequately.

Similarly, companies that neglect stakeholder interests – employees, customers, suppliers and communities – often find themselves facing talent retention challenges, consumer boycotts and regulatory backlash that ultimately harm financial performance. The COVID-19 pandemic demonstrated how companies with strong stakeholder relationships were better positioned to weather the crisis, while those that prioritised shareholders exclusively often struggled with workforce instability and community backlash.

Research consistently shows that companies with strong environmental, social and governance (ESG) practices tend to outperform their peers over the long term. This suggests that expanded fiduciary duties would not conflict with shareholder interests but would instead provide a more comprehensive framework for protecting and enhancing long-term value creation.

Legal pathways for reform

Several jurisdictions have already begun exploring legal reforms to expand directors' duties. The UK's Companies Act 2006 requires directors to consider the interests of employees, suppliers, customers and the community, as well as environmental impacts, when making decisions. While this represents progress, the framework remains somewhat ambiguous about how to balance competing stakeholder interests.

A more effective approach would involve explicit legislative changes that clearly define directors' environmental and stakeholder obligations. This could include requirements for directors to:

• conduct comprehensive environmental impact assessments for major business decisions

• establish measurable targets for environmental performance and stakeholder value creation

• report regularly on environmental and stakeholder metrics with the same rigor applied to financial reporting

• demonstrate how environmental and stakeholder considerations were integrated into strategic planning processes.

These obligations would need to be accompanied by safe harbor provisions that protect directors from liability when they make good-faith decisions that balance shareholder, environmental and stakeholder interests. This would encourage directors to take a more holistic approach to governance without exposing them to excessive legal risk.

實施挑戰與解決方案

Critics of expanded fiduciary duties often point to the complexity of balancing multiple stakeholder interests and the potential for decision-making paralysis. These concerns are valid but not insurmountable. Clear regulatory guidance, industry standards and professional development programmes can help directors respond to these complexities effectively.

One solution is to develop standardised frameworks for stakeholder impact assessment, similar to existing financial analysis tools. These frameworks would help directors evaluate the potential environmental and social impacts of their decisions in a systematic, quantifiable manner. Professional bodies could develop certification programmes to ensure directors have the necessary skills to fulfill their expanded duties.

Another approach is to phase in these obligations gradually, starting with large public companies and expanding to smaller entities over time. This would allow for the development of best practices and the refinement of legal frameworks based on real-world experience.

The role of enforcement and accountability

Expanded fiduciary duties would be meaningless without effective enforcement mechanisms. Regulatory bodies would need enhanced powers to monitor compliance and impose meaningful sanctions for breaches. This could include financial penalties, director disqualification and requirements for remedial action.

Stakeholder groups, including environmental organisations and community representatives, should have standing to bring derivative actions against directors who breach their environmental and stakeholder duties. This would create a direct accountability mechanism that doesn't rely solely on regulatory enforcement.

A vision for the future

The transition to expanded fiduciary duties represents more than a legal reform – it's a fundamental reimagining of corporate purpose in the 21st century. Companies operating under these frameworks would be better positioned to create sustainable value for all stakeholders while addressing the pressing environmental and social challenges of our time.

This transformation would drive innovation in sustainable technologies, improve working conditions, strengthen communities and help build a more resilient economy. Directors, freed from the artificial constraints of shareholder primacy, could make decisions that balance multiple interests and contribute to long-term prosperity.

The path forward requires courage from legislators, commitment from business leaders and pressure from stakeholders. But the potential rewards – a more sustainable, equitable and prosperous future – make this reform not just desirable but essential. The question is not whether we can afford to make these changes, but whether we can afford not to.

The time for incremental change has passed. Bold action on directors' fiduciary duties is needed to align corporate governance with the realities of the modern world and the imperatives of future generations.