Stephen Byers, UK Secretary of State for Trade and Industry, told a Trades Union Congress/Institute for Public Policy Research seminar on corporate governance in June that the framework of company law needs both to allow and to encourage directors to take wider responsibilities into account. "The present legal position leads directors to define their basic duty in the narrowest sense, based on the short term interests of shareholders."
He said that company law needs to reflect the fact that 70% of shares are held by institutions, and only 30% are held by individuals. "The largest block of shares is held by pension funds. This gives rise to something of a paradox. The majority of shares are actually held on behalf of a large proportion of the population, who are looking for long term returns. And yet companies can be legitimately run in a narrow interest for short-term motives."
He stressed that corporate governance issues go further than the relationship between management and shareholders. Decisions taken by companies affect the wider community in which the companies concerned operate.
While Byers paid tribute to the Turnbull Combined Code, he said that there may be a need for legislation in certain areas which are not covered by the Code, or where experience shows that some legal underpinning is needed.
