The duty of company directors is to run companies well – and tax avoidance is inconsistent with that

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The Class conference discussed the importance of the ownership of business, and how that has impact on the service it supplies.

I have discussed, today, what I consider the abuse of shareholders by directors in their own self interests. In the process I mentioned the duty of directors as specified by the Companies Act 2006. For completeness I will share them:

A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to—

(a)the likely consequences of any decision in the long term,

(b)the interests of the company's employees,

(c)the need to foster the company's business relationships with suppliers, customers and others,

(d)the impact of the company's operations on the community and the environment,

(e)the desirability of the company maintaining a reputation for high standards of business conduct, and

(f)the need to act fairly as between members of the company.

The conditions of paras (a) to (f) are important (and should be ranked equally with the membership, in my opinion), but let me look for a moment at the opening paragraph. What I want to emphasise is that this opening statement can be read as if complete in itself if cut off like this:

A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company

The reality is that, in my opinion, all that then follows, including references to the benefit of members, must be seen as qualifications on how this short statement I have just extracted can be clarified to make sure it is effective in practice.

I make the point because what this says is that the corporation is not, of itself, an immoral structure, just as tax is not, as I have already argued in itself capable of such judgement until put into practice. The very clear duty of a director is to run that organisation to the best of their ability. That's it. Nothing more, or less.

So the question to be asked is whether tax avoidance could ever in that case reflect action taken in good faith likely to promote the best interests of the company. I agree with David Quentin that this can actually be reduced to a question that does not even need involve moral language: it simply needs to be asked whether or not the act of avoiding tax is anti-social in that it imposes cost on others or not, and since it does the question is answered that such practice can never in that case be consistent with acting in good faith.

Shall we end the debate there? I doubt there is anything else to add. Whether or not the business is owned by shareholders, the state, or is a co-op the answer is the same: good management always requires the same thing of directors on this and many issues. It is the current cohort of corporate directors that lead the UK's largest companies that have got this matter seriously wrong. And if they cannot get it right the time has come to replace them, by nationalising companies where the public interest is threatened by their lack of good faith that might compromise the public if no other way is eventually possible.