The board of directors of a mining company is deciding whether to open a new mine. It will be highly profitable for shareholders but will cause significant damage to the local ecosystem.

Under section 172 of the Companies Act 2006 (Duty to promote the success of the company), what must the directors do regarding the environmental impact?

Answer options:

They must ignore the environmental impact, as their sole legal duty is to maximize shareholder profit.

They must have regard to the impact of the company's operations on the community and the environment when making their decision.

They must prioritize the environment over shareholder profits in all circumstances.

They must obtain permission from the local community before proceeding.

How to approach this question

Recall the 'Enlightened Shareholder Value' approach embedded in s.172 CA 2006. Directors must promote success for members, but must 'have regard to' a list of factors, including the environment.

Full Answer

B.They must have regard to the impact of the company's operations on the community and the environment when making their decision.✓ Correct

Section 172 of the Companies Act 2006 embodies the principle of 'enlightened shareholder value'. While the primary duty is to act in a way most likely to promote the success of the company for the benefit of its members as a whole, the directors must 'have regard to' several factors, including (under s.172(1)(d)) the impact of the company's operations on the community and the environment.

Common mistakes

Believing that maximizing profit is the *only* legal consideration, or conversely, believing that environmental concerns legally override shareholder interests.

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Practice the full ACCA LW — Corporate and Business Law Practice Exam 2

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