FTSE 350 companies are steaming ahead with preparations to meet the new corporate governance and reporting rules by the January 2019 deadline.
According to Deloitte’s ‘Annual Reports Insights’ report, which analysed 100 FTSE companies, directors in nearly a third of these companies are considering broader, non-financial matters in line with the new code.
The rules will be effective from 1 January 2019, when all large UK companies will need to be reporting on section 172 of the Companies Act 2006 as well as the new corporate governance code.
Section 172 already asks directors to consider non-financial matters like employee interests and impact on the community and environment while still encouraging the success of the company.
Subsequently, the Financial Reporting Council (FRC) has published a new UK Corporate Governance Code, which incorporates the prime minister’s social reform agenda as well as ambitions to restore trust in UK business.
Almost all, 97%, of the companies have already shared information about their impact on the community and environment.
The other section 172 areas that companies have been thinking about include the issue of acting fairly between different shareholders and the desire to maintain a good business conduct reputation.
Veronica Poole, head of corporate reporting at Deloitte, said: “Whilst UK law already requires directors to consider broader non-financial matters, it is encouraging to see more companies acknowledging this, in advance of the requirement to report on it.
“There has been year-on-year progress and by far the biggest leap was in companies sharing more about how they have fostered business relationships with suppliers – 71% today, up from 38% last year.
“Considerations of employee interests was also up from 88% last year to 95%. Both indicate a renewed focus of directors’ duties and acknowledgement of companies’ broader role within society.”
Out of the 100 companies surveyed, 32 percent of reports gave a clear-cut description of their company purpose going beyond just profits for shareholders. Exemplifying the importance of company culture, 58 percent of companies explained the values, behaviours, and culture they seek to uphold.
This year was also the first time companies were required to disclose policies on the environment, employees, social matters, human rights, anti-bribery, and anti-corruption since the Non-Financial Reporting (NFR) Directive became effective.
Nearly three quarters of companies, 71 percent, have one or more non-financial KPI, with employee-related items being the most popular non-financial metric.
Deloitte’s report also assessed the potential risks these FTSE companies face.
Cyber crime was, like last year, high on the risk list. Interestingly, 19 percent of companies felt that inability to keep up with technology changes might threaten their business.
Brexit, of course, was also seen as a significant risk by a quarter of companies while a further 34 referred to the broader economic uncertainty as a potential issue.
Environmental issues clearly have some way to go, since only one company identified climate change as a principal risk.
Equally, only 29 percent of companies met the new Disclosure Guidelines and Transparency Rules, which became effective on 1 January 2017, despite 80 percent of reports referring to aspects of diversity other than gender.
Poole added: “Of the 100 companies surveyed, 70 fell within the scope of NFR changes. However, there remains some ambiguity on companies’ reporting in this space and whether they are providing all the required information.”