As businesses begin to
digest the 462 pages of the UK company law review’s latest consultation
document, most are beginning to realise that important changes could be
on the way
Although the review’s two main
proposals on corporate social responsibility (CSR) fall short of
setting out any mandatory duties on companies to audit and report on
their social and environmental performance, they do send out clear
signals that future company law should no longer focus merely on a
company’s duties to its shareholders.
Of the two
proposals, the more significant is a suggestion in the review’s chapter
on corporate governance that companies should be required to produce a
statement of directors’ duties that has regard to the company’s need to
‘foster its business relationships’ with employees, suppliers and
customers – and to take account of ‘the impact of its operations’ on
local communities and the environment.
The review sets out
a draft statutory statement of directors’ duties to this effect, and
asks those taking part in consultation to say whether they agree with
its wording.
Its other proposal, which is less significant
as it currently stands, is that all listed companies (plus those with a
turnover of more than £500million) should, by law, have to produce an
‘operating and financial review’ (OFR) in their annual report that
covers, among other things, the ‘indirect effects of wider
relationships and issues’ on business performance.
The
review suggests these OFRs should include ‘an account of the company’s
key relationships with employees, customers, suppliers and others on
which its success depends’, plus ‘environmental policies and
performance’ and ‘policies and performance on social, ethical and
reputational issues’.
It recommends, however, that these need not be included in the OFR on a mandatory basis, but only if directors so wish.
That caveat in particular has disappointed a number of CSR campaigners,
including some inside the review team, but among the business community
at large it has caused less dismay. Proponents of a strong line on CSR
from the review are often from pressure groups, while those who would
prefer a less prescriptive ‘middle way’ are generally inside business.
John Probert, for instance, says he would not baulk at the new
requirements as they stand. As company secretary of the property
business Slough Estates he is not in favour of a legal requirement for
environmental and social issues to be addressed in the OFR because he
feels, paradoxically, that it could stifle CSR innovation.
‘It would be better if it wasn’t mandatory because it means companies
can then put in the detail they feel is relevant and change things as
the years go by,’ he told EP. ‘If it’s mandatory, then somebody will
come in with a boiler plate solution that everyone will just stick to
instead of looking at more innovative ways of doing things.’
Probert is also worried that a legal duty to produce yet another report
will just add to the volume of paper and put off members of the public.
‘The danger is that the report and accounts become such a huge document
that most people are not going to read it,’ he says. ‘Having said that,
most of the things the review talks about are already mentioned in our
annual report.’
Other business people clearly feel the
same, and are concerned that while it is sensible for the law to state
general principles on CSR, it would be counter-productive to tell
companies exactly how they should report.
‘I think best practice evolves and is not imposed on companies,’ said the company director of one FTSE 350 business.
‘Those of us who do the right thing will continue to do so, regardless
of whether there is a law. There is a business advantage to doing so.
If anything, I would think it should be a matter for Stock Exchange
regulation rather than for company law.’
Such views will
be feeding into the review during the consultation period up to 28
July, with another round of consultation followed by final
recommendations to ministers next year. A White Paper is not expected
to be put to parliament before the end of 2001 at the earliest.
Whatever shape the final document takes, however, most observers
believe the current draft inevitably points the way to a new business
agenda that places greater importance on CSR issues.
