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178 | Environmental and social transparency under the Companies Act 2006Notes | 179278AccountancyAge reported that “Confusion and fury from across the business communityhas met Gordon Brown’s decision to drop the mandatory operating and financialreview.” (Paul Grant, ‘Anger as OFR falls victim to Brown’s red tape blitz’ AccountancyAge(1 December 2005)). Charles Tilley, chief executive of the Chartered Institute of ManagementAccountants commented that “The drive to reduce the burden of red tape on businessis a laudable one, but we believe wholeheartedly in the value of the OFR. Confusing the OFRwith a reduction in bureaucracy risks losing the benefits it will deliver to all stakeholders,particularly shareholders. That would be the wrong step and a fundamentally bad one”(CIMA Press Release, ‘CIMA expresses disappointment at Chancellor’s plans to scrap mandatoryOFR’, 28 November 2005).279The main losses in substantive requirements were that the OFR explicitly required: thereport to be ‘prepared so as to assist the members of the company to assess the strategiesadopted by the company and the potential for those strategies to succeed’ (Section 1); thatinformation about environmental matters should include ‘the impact of the business ofthe company on the environment’ (Section 4), to the extent necessary to comply with thegeneral requirements of paragraphs 1 and 2; the review to (a) state whether it had beenprepared in accordance with relevant reporting standards, and (b) contain particulars of,and reasons for, any departure from such standards (Section 8). However, while not explicitin the business review, each of these requirements are still implicitly necessary to fulfil theother obligations under the Companies Act 2006. The further losses were the incidentalmentions of matters in paragraphs 34 and 37 of the ASB’s Reporting Standard 1.280EASC, ‘Operating and Financial Review (OFR) Regulations: Proposal to roll-back to EUminima: Note to Chancellor’, 11 November 2005.Annex 3281See, for explanation, Case 152/84 Marshall v Southampton and South West HampshireAHA [1986] IRLR 140.282Council Directive (EEC) 78/660 on the annual accounts of certain types of companies[1978] OJ L222/11.283Council Directive (EC) 2003/51 amending Directives 78/660/EEC, 83/349/EEC, 86/635/EEC and 91/674/EEC on the annual and consolidated accounts of certain types of companies,banks and other financial institutions and insurance undertakings [2003] OJL178/16.284Council Directive (EC) 2004/109 on the harmonisation of transparency requirements inrelation to information about issuers whose securities are admitted to trading on a regulatedmarket and amending Directive 2001/34/EC [2004] OJ L390/38.285Commission Recommendation (EC) 2001/453 on the recognition, measurement anddisclosure of environmental issues in the annual accounts and annual reports of companies[2001] OJ L156/33.286See also the Seventh Council Directive (EEC) 1983/349 based on the Article 54 (3) (g) ofthe Treaty on consolidated accounts [1983] OJ L193/1.287‘Recitals’ are the paragraphs which preface the body of the legislation, giving context toit.288London Stock Exchange, ‘RNS and the new Transparency Directive’ (December 2006),p. 4.289Directive ‘recitals’ have no independent legal value and do not need to appear in thenational legislation transposing the Directive. However, in case of litigation, the courtscan take them into consideration to ascertain the Council’s intention when drafting certainArticles.Annex 4290ss 475, 495, 496, 497 Companies Act 2006.291s 437(3) Companies Act 2006.292BERR, ‘Companies Act 2006: Regulatory Impact Assessment’ (January 2007) p. 17.293Up to this point, there has not been uniformity in reporting in terms of structure; notall reports explicitly lay their environmental or social reporting within a ‘business review’or ‘directors’ report’, even where it is included in the same document. For the purpose ofcomparative performance assessment, this renders them extremely unhelpful (confirmedby research team at Rathbone Greenbank in interview, 15 October 2008). How the introductioninto force of section 417 Companies Act 2006 affects this remains to be seen.294ACCA website, ‘The future of sustainability assurance’ (accessed Nov 2009) .295For example, AccountAbility, a leading assurance provider and author of the AA1000Assurance Standard, describes the process as follows: “Assurance is defined broadly interms of its outcome as: enabling the confidence of a party or group of people that theinformation they have is accurate and complete enough for them to make an informeddecision about a certain subject matter”. Quoted from PricewaterhouseCoopers, ‘The RightCombination*: Corporate Responsibility reports: the role of assurance providers and stakeholderpanels’ (December 2007) p. 15.296KPMG Global Sustainability Services, ‘KPMG International Survey of CorporateResponsibility Reporting 2005’ (June 2005).297National top 100 companies.298Averaged across 16 countries.299Indeed only Italy demonstrated a higher proportion of corporate responsibility reportswith audit statements in N100 companies.300It is important to note that these observations are not UK-specific, but regardless theygive some indication of the landscape in this uncertain area.
180 | Environmental and social transparency under the Companies Act 2006Notes | 181301KPMG Global Sustainability Services, ‘KPMG International Survey of CorporateResponsibility Reporting 2005’.302Ibid.303Ibid.304Ibid.305Ibid.306Individuals or groups that affect or could be affected by a company’s activities and associatedperformance.307PricewaterhouseCoopers, ‘The Right Combination*: Corporate Responsibility reports:the role of assurance providers and stakeholder panels’, p. 17.308AccountAbility and Utopies, ‘Critical Friends: The Emerging Role of Stakeholder Panelsin Corporate Governance, Reporting and Assurance’ (March 2007), p. 14.309The increasing use of these panels to decide how far company reporting should go addsfurther to the idea that in practice these reports are less and less strictly for company shareholders,and increasingly serving and communicating with a wider audience.310Deloitte Touche Tohmatsu; Ernst & Young; KPMG; PricewaterhouseCoopers.311SustainAbility, ‘Assurance: Issue Brief #15’ (June 2005).Annex 5312s 457 Companies Act 2006. s 14 of the Companies (Audit, Investigations and CommunityEnterprise) Act 2004 confers power on the Secretary of State to make an order appointinga body to monitor and review the accounts and reports of ‘issuers’ on the London StockExchange whose Home State is the UK. Under this Act the FRRP is authorized to monitorand ensure compliance with the LSE listing rules also.313Or, where applicable, Article 4 of the IAS Regulation.314s 459(7) Companies Act 2006. Information subject to legal professional privilege is,broadly, communications between a solicitor and their client that were conducted for thepurpose of receiving legal advice, both oral and in writing (“legal advice privilege”) anddocuments that are created for the dominant purpose of gathering evidence for use in legalproceedings (“litigation privilege”). There are limited exceptions.315FRRP website, ‘About the Panel’ (accessed Nov 2009) .316All information drawn from FRRP, ‘Operating Procedures’ (2008) unless otherwisenoted.317The FRRP website consistently refers only to ‘accounts’, and not ‘reports’. This may be areflection of the fact that directors’ reports are a relatively new subject of its mandate, butperhaps also broadly reflects its emphasis on strictly financial disclosure.318FRRP Press Release, ‘The Financial Reporting Review Panel Announces Priority Sectorsfor 2008/09’ (9 November 2007).319‘Impairment’ or downward revaluation of a fixed asset. Revaluation of fixed assets isan accounting technique sometimes required to accurately describe the true value of thecapital goods a business owns.320‘Liquidity’ in this context is the degree to which an asset or security can be bought or soldin the market without affecting its price.321FRRP website, ‘How the FRRP Works’ (accessed Nov 2009) .322Ibid.323Ibid.324Paul Grant, ‘FRRP opens up – a bit’ AccountancyAge (4 Aug 2008).325Ibid. If, following an enquiry, the FRRP is satisfied by a company’s explanations, the caseis closed and the fact that an enquiry was made remains confidential.326FRRP website, ‘Frequently Asked Questions’ (accessed Nov 2009) .327Ibid.328Judicial review is the power of the courts to review administrative acts of a public executivebody, and where necessary compel that body to refrain from certain acts or take certainsteps to fulfil its executive duties.329Lord Justice Waller (ed.), Civil Procedure Volume 1 (2008), p. 1523.330See, for example, Council of Civil Service Unions v Minister for the Civil Service [1985]A.C. 374.331Civil Procedure Volume 1, p.1525.332See CPR 54.2.Annex 6333In the case of public limited companies, the members are the shareholders. As this reviewis focusing on public limited companies, ‘members’ and ‘shareholders’ will be treated assynonymous unless otherwise stated.
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ClientEarthBen Bundock | Tim Malloc
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