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Do you think the new section 172 reporting requirements will improve companies’ consideration of their wider stakeholders?

03 September 2018

Will section 172 reporting improve consideration of wider stakeholders?

As new reporting requirements are introduced, our community reflects on the possible impact

With new reporting requirements on section 172 of the Companies Act 2006 being introduced under the Companies (Miscellaneous Reporting) Regulations 2018 we asked the Governance and Compliance and Core community to look at the impact it will have upon companies’ relationships with their wider stakeholders.

The headline figure shows that less than half (42%) of respondents think that consideration will be improved, with a quarter (25%) believing it will not and nearly a third (32%) unsure.

Respondents’ main concerns appear to be that the reporting requirements will become a mere compliance measure, with one stating: ‘There is a danger it will become a tick-box exercise with boiler plate wording to meet the requirements,’ and another: ‘This will most likely have a limited impact on improving stakeholder consideration as, after initial implementation, it will become a basic compliance exercise.’

Another believes that ‘responsible boards will already consider relevant stakeholders to an appropriate degree (with the overriding duty to act in a way most likely to benefit of the members as a whole) and would have done prior to s172 coming in 12 years ago anyway.’ This is echoed by another: ‘Companies that already consider wider stakeholders will report well, but even those that do not do so will appear to ‘pass’.’

The power of section 172 is queried, with one responder saying ‘unless there is a penalty applied I am not sure it will necessarily change behaviours. Good businesses will always take stakeholders into consideration and the reverse is true for badly run companies.’ However, another sees potential, commenting ‘on its own s172 has no power but enhanced by the 2018 [Uk Corporate Governance] code it gains more significance.’

How difficult do you see reporting being?

When asked if how difficult they see reporting on section 172 being on a scale
of one to ten, the community offered a wide range of figures, with the average
just over six (6.3).

The biggest challenges to reporting according to our community is ‘gathering data’, while other respondents were concerned about ‘trying to understand how and when there may be reporting requirements which are legitimately required, while not jeopardising business activities prematurely or needlessly’ and ‘engaging with shareholders does not always mean that companies will take
more actions in their favour.’

Fears were also raised that ‘disclosures may become more lengthy in trying to demonstrate stakeholder engagement through decisions made. Managing expectations of internal stakeholders of the additional disclosure may be challenge.’ The majority of respondents are currently either maintaining their existing practises or strengthening them.

However, some companies are putting initiatives in place, with forums being popular: ‘On top of existing activities – we are exploring the use of employee forums and the attendance of an employee representative at a couple of board meetings a year.’ Another states that they are implementing ‘more formality around our workforce engagement.

There are forums in place to engage with employees and the wider workforce but formal reporting will be enhanced‘. Others are ‘doing a full review’, or adding a ‘clear explanation in the annual report’.

Conducted in association with The Core Partnership

If you are a company secretary or governance professional at a leading UK business, and you would like to take part in or comment on future surveys, email team@core-partnership.co.uk

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