Ethical Performance
inside intelligence for responsible business


uncertainty shrouds business review regime

December 2006

Concerns are growing that businesses will not know what they need to include in the annual business reviews required by the UK's new Companies Act, which received Royal Assent last month.

Listed companies will have until October 2008 to comply with the Act, but it is still not clear whether official guidance will be given detailing what the reviews should contain.

The Act says the reviews should be forward-looking and cover 'environmental matters, employees and social and community issues' relevant to the company's operations, but offers little further advice. Ministers have been vague about when, or whether, such guidance will be forthcoming.

David Phillips, a partner at the business and accounting consultancy Pricewaterhouse-Coopers, said companies would require guidance such as that drawn up for the operating and financial reviews scrapped at short notice in favour of the less exacting business review.

'What is now urgently needed is similar guidance to underpin the new business review legislation,' he said. 'The practical problem for business is the lack of a reporting standard or some form of formal guidance that would establish the ... framework they should apply when preparing their business review.'

Confusion also surrounds recent suggestions by CSR minister Margaret Hodge that the regime will be reassessed after two years to see whether it needs to be changed. Last month her boss, trade and industry secretary Alistair Darling, declared: 'I don't want to touch company law again in the near future.'

But he added that 'if something isn't working or it's having an unintended consequence, you would be absolutely daft to say you wouldn't brook any alteration'.

A little known area of the Act, however, has pleased some CSR proponents. It allows, for the first time, 'nominee shareholders' - say, individual investors in a unit trust - access to information on annual company meetings and proxy voting forms so that they can vote at those meetings. This will also enable private shareholders to join in and table shareholder resolutions.

Gavin Oldham, chief executive of The Share Centre, the retail stockbrokers, said the changes could 'double the scale of private shareholder engagement in the companies in which they have invested'.

However, the corporate governance consultancy PIRC told EP that although the measure would 'to a certain extent' make shareholder intervention more likely, it was 'unlikely to result in any radical upgrade in shareholder activism'.

With the Companies Act now law, the government unveiled plans in last month's Queen's speech for a Climate Change Bill that will introduce measures to cut emissions of carbon dioxide by 60 per cent by 2050, with an independent Carbon Committee to oversee the process.

The government has also said it will introduce its much delayed legislation to create a specific offence of corporate manslaughter, which would make it easier for members of the public to prosecute companies for health and safety breaches.


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