Companies Act 2006 and Modern Company Law - Essay Example

To the employees and shareholders, the codification of the director’s duties will give a clear picture of the directors’ responsibilities and thus improves the company's situation. Companies Act 2006 Section 172 provides that it is the essential duty of directors that deal with the Enlightened Shareholders Value (ESV). The main aim of the firms is to develop the best shareholders value, based on securing welfare and prosperity for meeting long-term and the cordial association between resource holders or shareholders (as demonstrated by stakeholder-agency theory).

The drafting of this duty reveals that the director’s duty is related to the subjective making of decisions. An individual for his benefit should not take the decision and the decision must be taken for promoting the company’s success. This Act was focused on codifying the duties of directors so that they reflect the position taken by common law. This Act was successful in providing an authoritative declaration of what duties directors were required to perform in their organizations. The government sought to apply the use of some of the proposals that came from a review of company law, which came up with a recommendation about the need for more clarity on the expectations of what duties the directors of a company were to perform.

In addition, the statutory recital of the duties of directors was with a lot of reliance on the Scottish Law Commission and the Law Commission. These provided a recommendation on the clear recital of a director’s skill, the duty of care, and fiduciary duties owed to their companies based on statutes. The Companies Act of 2006 came into actualization to bring to effect significant changes in the corporate governance of companies, with particular emphasis on the duties that directors owe to their institutions.

This Act was focused on codifying the duties of directors to reflect the position taken by common law.