Wednesday 28 April 2010

UK: non-financial reporting in FTSE100 company annual reports

CORE - the Corporate Responsibility Coalition - has today published research examining FTSE100 companies' business reviews: see here (pdf). The obligation to produce a business review is found in Section 417 of the Companies Act (2006). CORE's report, based on an analysis of a representative sample of FTSE100 reports, states:

There were three areas in which it was not clear how, if at all, companies were complying with the Act. Firstly, s417 says that the purpose of the Business Review is to ‘help them assess how the directors have performed their duty [to promote the success of the company] under section 172’. An obvious way to do this would be to describe the way the Business Review was prepared. Yet ... only a minority of companies did so.

Secondly, s417 requires that if a Business Review does not contain information about each of the specified key factors which underlie the business’ performance, then these omissions should be stated. This does not appear to have been done in any of the Annual Reports.

Thirdly, there was evidently considerable confusion as to what a Business Review actually was. At its worst this meant that in some cases, it was not possible to identify the Business Review: 8 Annual Reports appeared to have no identifiable Business Review section. This does not seem to be compliant with the Act and is certainly outside its spirit. Yet even where it was possible to identify the Business Review, there was a great variety of practices concerning the status and use of external sources of non-financial information. For example, some companies referred to more detail on their websites, others referred generally to their CR reports, while yet others made reference to an internet location at which further detail could be found. According to legal advice obtained by CORE, such general references should not be considered a part of a Business Review".

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