The Quoted Companies Alliance (‘QCA’) has looked at the Section 172 of the Companies Act 2006 (the ‘Act’) reporting requirements for directors and have summarised the latest position.
For companies with year ends on or after 1 January 2019, you may be required to report for the first time on how directors have fulfilled their duties under section 172 of the Act. Companies will have to effectively communicate how its directors have regard to a range of matters relevant to its stakeholders.
The companies affected by the new reporting requirements are those that meet two of the three criteria below:
- Turnover of more than £36m
- Balance sheet of more than £18m
- More than 250 employees (regardless of locality)
Section 172 of the Act requires every director to “act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole”.
Whilst this requirement has not changed, larger companies, both privately held and those listed on the Main Market and AIM, that exceed the thresholds above are required to be more transparent about how they are considering the interests of wider stakeholders.
The challenge will be how the company communicates effectively to its stakeholders the ways in which its directors have fulfilled their duties in its Section 172 statement. Companies applying the QCA Corporate Governance Code or the UK Corporate Governance Code will already be considering the issues set out in Section 172.
Questions companies should ask themselves include:
- Am I required to provide a Section 172(1) Statement?
- How can I draw on existing information in my strategic report and corporate governance reporting to effectively communicate how directors have fulfilled their section 172 obligations?
The QCA have provided a useful summary of some good points of reference from organisations such as the Institute of Business Ethics, the FRC and also BEIS.
For details of the guidance follow please click here.