Reporting of corporate governance arrangements within companies
February 7, 2019
In July 2018 several new requirements were introduced in the Companies (Miscellaneous Report) Regulations 2018. Each requirement addresses aspects of the ongoing corporate governance reform debate, which aims to improve the transparency and reporting of corporate governance arrangements within companies. The new requirements come into effect for financial periods beginning on or after 1 January 2019. The main new requirements are:
s172 reporting – Strategic reports for large companies (as per the Companies Act thresholds) must include a s172 statement. Whilst the duties under s172, known as directors’ duties, are not new, this new statement is intended to show how company directors have complied with their duty to promote the success of the company. The guidance highlights that the following sections may wish to be considered when making the statement:
- Long term – how the company’s long-term success has been considered when making strategic decision and the consequences of those decisions;
- Stakeholders – important stakeholder relations and their significance to the long-term value generation of preservation;
- Principal decisions – how the matters in s172 of the Companies Act are considered by the Board of Directors when making decisions;
- Capital allocation and dividend policy – an explanation of how capital allocation decisions (e.g. investment in assets, dividends paid etc) have been made, taking into consideration the long term and the interest of the stakeholders; and
- Culture – outlining the culture the board has set to ensure that the value and objective, as well as any factors important in maintaining the company’s reputation, have been considered in making decisions.
Other stakeholder engagement – Director’s reports for large companies must include a statement on the regard that directors have given to fostering the company’s business relationship with suppliers, customers and others, summarising what the effect of this consideration has been, including on the principal decisions taken by the company during the financial year.
Employee stakeholder engagement – UK registered companies with more than 250 employees will have to include a statement on engagement with employees and the regard to employee interests. More details on this can be found on the Large and Medium Company Report blog dated 7 January 2019.
Whilst this new regulation will not take effect until reporting on periods beginning on or after 1 January 2019, it is important to give this some thought over the coming year as the Financial Reporting Council move towards seeing more clear and meaningful reporting in the annual financial statements. Preparers will need to ensure that these new requirements are included in the context of the annual report as a whole, rather than simply as ‘bolt ons’. The annual report needs to remain cohesive and provide information to help shareholders fully understand the financial statements and understand how the directors are performing in their duties.
If you would like to discuss this in more detail please email Matthew Schofield or call us on 01772 821 021.