HM Insights

Erosion of trust in British business community – is there a moral duty to act fairly?

Following the collapse of high profile UK businesses questions are being raised of the British business community and if the directors of these failing businesses are complying with their fiduciary duties owed to the company.

Trust Business Employment Law

Over the last few months a number of high profile businesses have entered administration to the detriment of their employees.

It is well documented that Sir Philip Green sold BHS for just £1 to former racing driver Dominic Chappell. BHS is now in administration.  The net result is that there around 11,000 people without jobs and liabilities have been passed onto the tax payer.

Two Commons select committees are holding hearings into the demise of BHS where numerous directors are due to give evidence later this month.

Mike Ashley has faced questions in Parliament about allegations made against certain practices in Sports Direct. 

So what duties to directors owe to a company?

Directors of a company have a fiduciary relationship with the company to which they are appointed. A fiduciary duty is a relationship of trust to act within the best interests of the company, in good faith and honestly. A director must comply with his responsibilities under the Companies Act 2006:

  • Act within the powers of the company;
  • Promote the success of the company;
  • Exercise independent judgment;
  • Avoid conflicts of interest;
  • Not accept benefits from third parties; and
  • Declare any interest in proposed transactions or arrangements with the company     

Whilst the affairs of BHS and Sports Direct amongst other companies, may be deemed to breach moral and ethical duties, this is not something that is covered by the statutory fiduciary duties of directors in the UK.

The activities that have been seen over the last few months are strictly legal in terms of the law, however questions will continue to be asked about the morality of the way in which some directors have conducted themselves. 

Is there a moral duty to act in the interests of employees?

Generally speaking there is no moral duty on employers.  Quite simply they are free to act in any way they deem fit so long as it complies with legislation.

However the law has developed in such a way to make sure that the requirements placed on employers is wide ranging.  Employees have protection relating to:-

  • Minimum Wage;
  • Protection from discrimination;
  • Workplace Health and Safety; and
  • Protection from unfair dismissal (in certain circumstances) to name but a few.

Employers have a duty of care to their employees, which means that they should take all steps which are reasonably possible to ensure their employees’ health, safety and wellbeing.

Treating employees well is not simply a legal matter but can help improve staff retention and aid employee engagement.  Where employees feel valued they are more likely to remain loyal to their employer. 

Being a “good employer” may not mean paying above the market average but may be more about giving considerations to an employee’s needs.  Often additional benefits are key differentiators between employers.  This doesn’t mean paying for all your staff to go on holiday as Tiens Group owner Li Jinyuan did; but having respect for employees and understanding their needs.

In light of the recent interest that Parliament has shown in the running of certain companies it is likely that in the absence of their being a moral duty on employers to act fairly; legal duties may compel employers to find their moral compass.