Surprise and anger have greeted news that the UK government has
scrapped its requirement on large companies to produce annual Operating
and Financial Reviews (OFRs) just as it was about to come into force.
The decision, unexpectedly announced by the chancellor of the exchequer
Gordon Brown late last month, means that legislation brought in earlier
this year, which would have required UK listed companies to issue
forward-looking reports of the social and environmental impacts of
their business from April 2006, has been dumped.
Officials at the Department of Trade and Industry, which led on the
regulation, are understood to have been taken by surprise at the
U-turn. One source told EP: ‘They are as hopping mad as the rest of
us.’ Similar reactions were heard from a wide cross-section of
interests, from the Institute of Directors – which said the decision
was ‘cavalier and ill-thought-through’ – to the Trades Union Congress,
which claimed it left government policies on CSR ‘confused at best’.
Mainstream investors were also upset. The Association of British
Insurers, whose members control shares worth a quarter of the stock
market, said the decision was ‘peculiar’ given the government’s
professed commitment to CSR, and ‘a matter of considerable regret’.
As a result, the ABI and the Institute of Directors have proposed
including annual OFRs in the UK’s corporate governance code ‘on the
best-practice principle of comply-or-explain’, with supporting guidance.
Other investors, particularly in the SRI field, hope many companies
will produce OFRs despite the government’s decision. Rob Lake, head of
SRI at Henderson Global Investors, told EP: ‘Our experience is that
while a lot of companies had reservations about the OFR, many of them
have been working diligently at preparing them and have told us they
now find them of great value.’
The government says its implementation of the European Union Accounts
Modernization Directive, which comes into effect in April 2006, will
still require companies to produce, ‘to the extent necessary for an
understanding of the company’s development, performance or position …
where appropriate, non-financial key performance indicators relevant to
the particular business, including information relating to
environmental and employee matters.’ But the directive is much
less specific than the OFR and less wide ranging.
Ironically, the decision to scrap the OFR came shortly after the
government announced a measure in the Company Law Reform Bill that
would require company directors to take account of social and
environmental matters when setting company strategy
