Not for profit: a new director's duty?

The "whole new purpose", the Chairman was referring to was the stadium becoming a drive-through COVID-19 testing centre for NHS staff and their dependants. This is but one example of the numerous boards who have made much lauded decisions in the recent months. Such decisions will often have likely detrimental impact on profits - in the short term.

Does this still comply with their duty to promote the success of the company and specifically their shareholders? If you look beyond shareholder dividends – then yes, very much so. Directors must have regard (amongst other matters) to: the likely consequences of any decision in the long term; the interests of the company's employees; the need to foster the company's business relationships with suppliers, customers and others; the impact of the company's operations on the community and the environment; the desirability of the company maintaining a reputation for high standards of business conduct; and the need to act fairly as between the members of the company. Reacting proactively to the COVID crisis and making active decisions to assist with the effort in any way they can ensures directors are driving the success of their businesses – and does not focus narrowly on shareholder dividends.

Further examples of creative - and community minded – decisions are those made by directors of the LVMH group of companies; re-purposing their efforts from high end fashion and perfume to the production of PPE and hand sanitiser. The directors will have had to consider the cost of such efforts – actually having to invest in different equipment and supplies for which they would see no financial return – weighed against the tide of positive public feeling towards their efforts. Whether or not this translates into higher sales of LVMH's usual clothes and perfumes once life returns to normal, is a question yet to be answered.  

Engineers, doctors and Mercedes Formula One engineers developed a breathing aid to keep patients out of intensive care; it took less than 100 hours from first meeting to first production model and has been approved by the relevant regulatory authority. And now a significant proportion of FI teams are offering their engineering facilities to increase production. A spokesperson for F1 said they were committed to "provide as much help and assistance as we can". Again, this isn't a focus on immediate profit, but in the wider context of the pandemic   can readily be justified as promoting value in the business and the brand, for today and in the longer term.

As well as re-purposing their businesses, those in hospitality have been able to make considerable and very well received donations. In March 2020 Pret A Manger closed the majority of their 530 cafes. But for those remaining open, being takeaway only, they invited all NHS workers to enjoy their hot drinks on the house and 50% off everything else. Clearly the directors recognised the importance of sound principles of corporate social responsibility, weighing up the increased costs against the societal benefits of their decision.

Repurposing businesses and giveaways are both examples of a new form of corporate social responsibility (CSR) seen during the COVID-19 crisis.  It is clear that the importance of this is greater than ever and in the spotlight during this current crisis. ESG criteria (environmental, social and governance) are a set of standards for a company's operations that socially conscious investors use to screen potential investments. Younger stakeholders in particular have shown an interest in putting their money where their values are, both in relation to investments and employment opportunities. 

For example, a global study of 1,125 millennials, conducted by the deVere Group, found that 77% consider ESG concerns as more important than returns when considering future investment.  Similarly a recent survey of 1,000 employees in the United States found that almost 40% of millennials stated that they have chosen employment in the past because the company performed better on sustainability than the alternative (compared with less than 25% of gen X respondents, and 17% of baby boomers).  Clearly, if a business wants to recruit the best talent in the future – to help ensure the mid to long term success of the company – its efforts to assist in the COVID-19 pandemic is likely to be considered a factor (if not a key factor) amongst millennials.

Whilst repurposing your business and giveaways are laudable, directors must still consider the immediate viability of their businesses. The crisis has had a very detrimental impact on numerous businesses, whose directors who do not have the luxury of sufficient cashflow to allow them now to repurpose or contribute to the efforts against COVID-19. Directors need to remain aware of their duties. Where a company is at risk of insolvency, the scope and nature of the duties of its directors' changes significantly and directors need to continually reassess their decision to continue trading in light of developing circumstances. Directors must avoid accepting credit or incurring new liabilities where there is no reasonable expectation of the relevant creditor being paid – which would prevent many struggling businesses from repurposing their business or contributing to the efforts against COVID-19 despite every good intention.

Last week the Government announced their "COVID-19 Secure guidance" on how to ensure workplaces were as safe as possible. The guidelines essentially encourage businesses i.e. their directors, to use their discretion, carrying out risk assessments to identify risk of infection and how those risks could be reduced. Directors are personally liable and can be disqualified for the health and safety failures of their company if the failures occur through the director's consent or neglect. Again, further challenging decisions for directors - who are unlikely to have had to make similar decisions before.