Cicero Policy Briefer

Issue 20, January 2008

Corporate Responsibility and the new Companies Act: what does it mean?

By Lord Newby

When Gordon Brown took business by surprise in November 2005 by announcing that he was going to abolish well-advanced plans for the introduction of Operating and Financial Reviews (OFRs) by quoted companies, many directors relaxed. They assumed that they would not have to take into account employee, community and environmental interests as a matter of law and would not have to produce a business review which explained their policies in these areas.

They were wrong. The main thrust of the OFR proposals was contained in the 2006 Companies Act and came into force last October. From that date on, all quoted companies have to produce an annual business review which must include a description of the company’s policies towards employees, the community and the environment, and to the extent necessary for an understanding of the business, must set and report performance against Key Performance Indicators covering these issues. Unlike many provisions of the Act, whose implementation was delayed beyond last year, these provisions came into effect on time-no doubt to prevent grumbling from Labour MPs who remained aggrieved at the ditching of the OFRs.

For the very largest companies, the new rules won’t prove too difficult—they are nearly all doing much of what will be required already. But for others, their boards will be forced to consider these broader stakeholder issues formally for the first time. And for many public-facing companies which don’t have a listing, the pressure is on to follow suit.

Lord Newby will chair the Cicero Forum conference ‘Designing your Corporate Responsibility strategy for the new Companies Act’ on 17 January.

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