The approach to disclosure in the Companies Act 2006 is preoccupied Essay

The approach to disclosure in the Companies Act 2006 is preoccupied with one audience, shareholders - Essay Example The obvious way for companies to prove legitimacy to the wider class of stakeholders is through reporting requirements. Unfortunately, the Companies Act 2006, while recognizing the social contract between the company and stakeholders, does not make social and environmental reporting mandatory. A close reading of the relevant sections of the 2006 Act reveals that environmental and social reporting are entirely voluntary. It is therefore reasonable to conclude that the Companies Act 2006 has shifted momentum in favour of stakeholder theory to the principle of shareholder primacy. Clark and Knight argue that the disclosure requirements contained in the Companies Act 2006 appear to meet the needs of shareholder and while they may appear to meet the needs of stakeholders, the disclosure requirements are motivated by the market value of the corporation rather than expanding the concept of corporate social responsibility. In this regard, the disclosure requirements of the Companies Act 2006 speaks to informing the shareholders of the company rather than to all stakeholders. Essentially, companies, may if they wish, inform stakeholders of their social and environmental activities and policies, while they must inform shareholders of their financial activities and policies. This is symptomatic of the ambiguous approach taken by the Companies Act 2006 to stakeholder and shareholder primacy.