‘I understand the concerns about the extra administrative cost of the
gold-plated regulatory requirement that from April next year all quoted
companies must publish an operating and financial review. So we will abolish
this requirement and reduce the burdens placed upon you.’
Gordon Brown’s announcement at last week’s CBI conference, barely six months
after the launch of the OFR, certainly caught a few people on the hop, not least
the Accounting Standards Board, the body tasked with enforcing the new reporting
regulations from April 2006.
The summary execution by the chancellor in front of the CBI was all the more
surprising given the OFR’s long gestation period (the origins of the OFR stem
back to the setting up of a working group by the DTI in December 2002), and its
close links to the Company Law Review.
The decision is undeniably a reversal of policy – but the Treasury has a
slightly different take on the issue. Rather than a u-turn, it sees the
abolition of the OFR as an attempt to reduce the burden of red tape on British
business and the British economy, red tape that Brown claims is driven out of
European regulation, ‘where in the process of translation into our own UK laws
we end up with additional and unnecessary burdens,’ he said last week.
Is the government really responding to British business or is there, perhaps,
an other agenda? Certainly Brown’s message is one that plays well with the CBI,
even if it succeeded in surprising both the DTI and the ASB. But that is
politics as opposed to joined-up government, and sadly highlights how the former
is more important in Westminster, especially as the Treasury holds all the purse
Of course, removing the reporting burden not only means the regulator has
nothing to regulate, but the Treasury saves money too.
But now the OFR has become a voluntary code, it certainly doesn’t signify a
softening of the government’s commitment to good governance.
The OFR frightened a lot of companies for the right reasons but it has always
been the government’s aim to encourage transparency rather than compel
The ASB was working its way through an awareness programme for companies
regarding their new reporting obligations, only for the rug to be pulled from
under its feet. What damaging message does this send out about future reporting
For those companies that have already invested in creating an OFR report for
the next fiscal year, their endeavours should certainly not be viewed as wasted
effort. As an exercise in stakeholder communications alone, the OFR is no bad
At best it will have begun the debate on disclosure even if the intended
audience was only ‘members’. It will have caused the board to select information
that inspires potential investors yet thwarts nosey competitors. At worst it
will have caused the accountants to make a difficult choice between their
regulator obligation for disclosure and their professional obligation for
One thing is for sure, the reporting landscape has been fundamentally changed
by the OFR. The transparency principle is morally sound, and any step towards
reminding companies of their ethical duties is no bad thing. As such, the OFR
will join the CSR report as document of due diligence. Those companies with
nothing to hide will already have prepared an OFR, irrespective of its new
Those who would obfuscate or demur will be relieved at having no longer to
prepare a defence for the expected FRRP accusation of non-compliance. This
doesn’t matter, they know who they are and their ‘members’ will find them out
with or without mandatory reporting.
The OFR has been enormously helpful in bringing reputation to the boardroom
as a topic for measurement and accountability to ‘members’ or potential
Reputation is, after all, a perception of character. Those companies with a
good reputation can focus on how to nurture and build on the asset, those with a
bad reputation will focus on how to contain and limit the liability.
Even in its short life, the OFR has created an awareness of reputation as an
important measure of investor confidence and for this I and my colleagues in
risk research are extremely grateful. The OFR as mandatory is dead, long live
the OFR as discretionary. This is what good governance is all about, a light
hand on the tiller.
Garry Honey is visiting senior fellow at the Centre for Risk Research at
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