THE prime duty of directors is to the company and not to their shareholders, a new report has said.
Contributing its views to the continuing debate in Britain on corporate governance, the report from the independent group, The Centre for Tomorrow's Company, made up of a group of leading businesses, said many chief executives and other directors believed it was their duty to concentrate on pleasing current shareholders.
"In fact, directors' duties are owed to their company and not to any specific third party group.
"They must, as fiduciaries, have regard to the interest of shareholders, but that obligation is not related to the holders of shares at one particular time."
The report went on: "For directors not to give due weight to all the company's key relationships may well be a breach of fiduciary duty since, without this, the company is exposing itself to undue risk, as well as missing opportunities to add long term shareholder value through these relationships."
The Centre for Tomorrow's Company also supported calls for a more open and sophisticated dialogue between companies and investors, covering corporate objectives, as well as financial matters.
It also emphasised that large businesses had no alternative to holding annual shareholder meetings to avoid the occasions when some are "hijacked" by activists and special interest groups.
"Large businesses have no choice. They have to be transparent and consistent in their dealings with employees, customers, suppliers and shareholders.
"They have to choose how they propose to hold dialogue with stakeholder groups. They cannot expect to treat shareholders as a watertight compartment."
The report added: "It is in the interests of shareholders that annual reports and a.g.m.s are designed to communicate the value added by business to customers, suppliers, employees and the community.
"Reports which show the extent, to which all of these relationships' are being developed will give a forward indicator of the company's success in continuing to create long term shareholder value."
