The Companies Bill, which will introduce a limited range of light-touch
measures to encourage corporate responsibility in the UK, will finally
receive royal assent this month.
The Bill, which went for final discussion in the House of Lords on 2
November, contains three sections concerning CSR – all of which
remained essentially unchanged during its remaining Report and Third
Reading stages in the House of Commons last month.
The most significant CSR-related clause requires listed companies to
publish a forward-looking annual ‘Business Review’ that can, if the
company feels appropriate, take account of social and environmental
issues affecting the business. Businesses are also encouraged to look
at supplier relationships in the reviews, but as EP went to press it
was not clear when the new reporting regime would start, whether
guidance would be issued for reporters, and how thorough any guidance
might be.
The government inserted a reference to suppliers into this part of the
Bill at a late stage last month. This drew criticism from the
Confederation of British Industry, but most observers feel the
amendment was of little significance.
Another clause will require directors to have regard for the interests
not just of shareholders but also customers, suppliers, the community
and the environment. This duty is already enshrined in common law, but
will now be stated explicitly for the first time in primary legislation.
The third CSR-related measure gives ministers reserve powers to force
institutional investors to declare how they have voted at company
annual general meetings. This is expected to lead to more shareholder
activism.
The Bill was never intended to usher in strong regulation on CSR, but
is far weaker than once appeared likely, because the government
scrapped its long-held plans to require companies to produce annual
Operating and Financial Reviews. These would have required companies to
disclose more information on their social and environmental performance
than the Business Review regime will entail. In CSR circles the Bill is
therefore likely to be remembered mainly for the anger and bewilderment
this move generated, not just among non-governmental organizations but
also among corporate supporters of the OFR.
Corporate social responsibility minister Margaret Hodge last month held
up the faint prospect of a resurrection of the OFR by stating that the
Business Review regime would be reassessed in two years’ time to see
whether it had improved disclosure. But Julian Oram, head of trade and
corporates at ActionAid, said: ‘What’s worrying is that … there will
be no yardstick against which companies reporting on these issues will
be measured.’
The Bill has met with a lukewarm response from the corporate sector,
which has grown weary of the legislation’s ten-year gestation. ‘A lot
of companies, quite frankly, are at the stage of saying “just tell me
what it is when it’s done”,’ said Patricia Peter, head of corporate
governance at the Institute of Directors.
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