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The UK government has settled details of its forthcoming requirement on
listed companies to publish a forward-looking annual ‘Business Review’
that takes account of social and environmental issues affecting the
business.
The new measure, parachuted into the Company Law Reform Bill last month, says company directors must use the Business Review to cover ‘the main trends and factors likely to affect the future development, performance and position of the company’s business’. It would also require company directors to include information about ‘the impact of the company’s business on the environment’, its employees, and ‘social and community issues’.
However, company directors can choose not to include such information – providing they state this in the review – and also anything ‘seriously prejudicial to the company’s interests’.
There will be no statutory reporting standards related to the reviews, and directors cannot be subject to legal challenge over information they provide unless it has been produced ‘recklessly’ or in ‘bad faith’. The government believes this will encourage more open reporting.
The new Business Reviews, which will be introduced to fulfil the requirements of the European Union’s accounts modernization directive, will stand in place of the Operating and Financial Review regime, which would have imposed more specific duties on large listed companies to report their social and environmental performance. The proposed statutory requirement to produce an OFR was scrapped without warning in November 2005. A period of consultation followed, but the government has now pronounced the OFR regulation dead.
Sarah McCarthy-Fry, Labour MP for Portsmouth North, said that the demise of the statutory OFR, which had proposed detailed reporting standards, ‘will severely undermine the comparability of [non-financial] reports’.
The precise shape of the Business Reviews regime may alter as the Company Law Reform Bill passes through the House of Commons. The Bill finished its passage through the House of Lords on 23 May and is expected to receive royal assent in the autumn. This means that companies will not have to produce Business Reviews before April 2007 at the earliest. The government has said it will consult with business on the start date.
Another measure, Clause 156, which requires directors to have regard for the interests not just of shareholders but also customers, suppliers, the community and the environment, survived opposition from Conservative peers in the House of Lords.
The government stresses that the clause will only clarify the existing legal position established through case law, creating a statutory obligation for the first time. However, the Opposition is expected to table further amendments in the Commons.
Clause 866, which gives ministers the power to force institutional investors to declare their voting records at company annual general meetings, also remains largely intact.
The new measure, parachuted into the Company Law Reform Bill last month, says company directors must use the Business Review to cover ‘the main trends and factors likely to affect the future development, performance and position of the company’s business’. It would also require company directors to include information about ‘the impact of the company’s business on the environment’, its employees, and ‘social and community issues’.
However, company directors can choose not to include such information – providing they state this in the review – and also anything ‘seriously prejudicial to the company’s interests’.
There will be no statutory reporting standards related to the reviews, and directors cannot be subject to legal challenge over information they provide unless it has been produced ‘recklessly’ or in ‘bad faith’. The government believes this will encourage more open reporting.
The new Business Reviews, which will be introduced to fulfil the requirements of the European Union’s accounts modernization directive, will stand in place of the Operating and Financial Review regime, which would have imposed more specific duties on large listed companies to report their social and environmental performance. The proposed statutory requirement to produce an OFR was scrapped without warning in November 2005. A period of consultation followed, but the government has now pronounced the OFR regulation dead.
Sarah McCarthy-Fry, Labour MP for Portsmouth North, said that the demise of the statutory OFR, which had proposed detailed reporting standards, ‘will severely undermine the comparability of [non-financial] reports’.
The precise shape of the Business Reviews regime may alter as the Company Law Reform Bill passes through the House of Commons. The Bill finished its passage through the House of Lords on 23 May and is expected to receive royal assent in the autumn. This means that companies will not have to produce Business Reviews before April 2007 at the earliest. The government has said it will consult with business on the start date.
Another measure, Clause 156, which requires directors to have regard for the interests not just of shareholders but also customers, suppliers, the community and the environment, survived opposition from Conservative peers in the House of Lords.
The government stresses that the clause will only clarify the existing legal position established through case law, creating a statutory obligation for the first time. However, the Opposition is expected to table further amendments in the Commons.
Clause 866, which gives ministers the power to force institutional investors to declare their voting records at company annual general meetings, also remains largely intact.
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