The government’s decision to scrap the Operating and Financial Review
took everyone by surprise, including, it seems, the Department of Trade
and Industry, which was responsible for ushering in the regulation. It
says something for the government’s past successes in neutering the
lobby for more regulation in this area that so much hope had been
invested in a modest disclosure measure of which only part – albeit the
most controversial part – related to social and environmental matters.
OFRs would, however, have had some impact on the UK’s non-financial
reporting regime by requiring all large companies, and not just those
that chose to, to reveal more details of their social and environmental
performance. Investors and others may now urge companies to produce
forward-looking narrative reports anyway, but only those already
committed to CSR are likely to do so – and the OFR specifically
targeted laggard companies.
This is a classic example of how not to implement policy – cavalier,
high handed and riding roughshod over interested parties. It is, in
short, a model of bad stakeholder management and has terminally damaged
this government’s credibility as a CSR champion. Who can take seriously
the earnest pronouncements of a CSR minister whose government presided
over this embarrassing debacle? The government’s flagship European
conference on CSR and the finance sector a few days later had a
lacklustre air. Recrimination was just below the surface. Some sharp
City minds had burned a lot of midnight oil in consultation, and had
just seen years of work consigned
to the dustbin.
The OFR was not an example of ‘goldplating’ of a European Union
directive, but had arisen from the government’s own Company Law Review,
which recommended a statutory OFR reporting requirement back in 2000 –
three years before the EU directive on modernizing company accounts was
adopted.
Salvaging anything out of this mess is going to be difficult. A
judicial review, on which pressure groups have taken legal advice,
would embarrass the government, but would consider only the way the
decision was made, and not the decision itself, even assuming a judge
found sufficient grounds for this challenge to proceed. On present
evidence, that is unlikely. The Accounts Modernisation Directive, which
the government claims will do more or less the same job as the OFR,
insofar as it refers to CSR-related disclosures, amounts to a single
clause in one paragraph of an Article. It is simply too short on
specifics to clarify reporting responsibilities.
The OFR regulation is dead – and, to all intents and purposes, so is
this government’s carefully crafted reputation as a champion of
corporate social responsibility.
