The end of the OFR - and corporate responsibility?

An adequate replacement

Does the decision to abolish the statutory OFR and replace it with a business
review represent a backwards step in the business sector’s commitment to the
social and environmental agenda, both here and abroad? This is certainly the
view of many commentators representing ethical investors, charities, faith
groups, think tanks and academic institutions.

I don’t believe that the removal of the operating and financial review
requirement will have such a negative effect. The OFR may have been used by
readers to gauge a company’s progress on issues such as employee relations,
social impacts and environmental performance, but it was never intended to
replace CSR reporting.

Indeed, there was no blanket OFR requirement to report on employees, the
environment, and social and community issues. Rather, disclosure was required
only where necessary to enable members to assess the success of strategies
adopted by a company.

Does the ‘so-called’ scaled-down business review set a lower standard of
reporting that fails the needs of investors? I don’t think so. Its requirements
are, in many ways, just as onerous as those promoted by the OFR. Significantly,
business reviews must be prepared for all companies.

At the same time, the business review concept is not that dissimilar.
Disclosure of a company’s principal risks and uncertainties is still required,
as are key performance indicators addressing environmental and employee matters,
where necessary.

The business review requirements are silent as to social and community issues
and corporate policy in relation to employees and the environment, but silence
should not be interpreted as an exemption from reporting.

Finally, one has to consider the expectations of investors. The OFR
legislation was crafted over seven years of rigorous debate. You can not turn
the clock back simply by abolishing the OFR. Those companies that were commi
tted to the social and environmental agenda will continue to be – and they will
do so because it makes sound business sense.

Timothy Copnell is director of the KPMG-sponsored Audit Committee
Institute

An inadequate approach

For ActionAid, Gordon Brown’s decision to abolish the OFR came as an appaling
shock. As an organisation working across the developing world for over 30 years,
we have witnessed numerous examples of both responsible and reckless behaviour
by UK companies abroad.

This experience has led us to become strong advocates for policies that
promote greater transparency among companies investing in poor countries, where
communities often do not benefit from the same legal protections we enjoy in the
UK.

While recognising room for impro-vement, we supported the OFR as a useful
starting point for mandatory company reporting on social matters, labour rights
and environmental issues.

By scrapping the only regulatory mechanism available for ensuring this
information is regularly published, we believe the government has increased the
risk that instances of reckless corporate behaviour – including child labour
exploitation or human rights abuses – will fail to be noticed until a scandal
arises.

While the government claims that the new, lighter-touch ‘business review’
will fulfil the same functions, we are concerned that it will fail to capture
the interactions between companies’ operations and poverty issues.

Unlike the OFR, the business review makes no explicit references to the need
for companies to report on social and community matters. Nor does it require
companies to declare their policies on social, environmental and employee issues
and how these have been put into practice.

But perhaps most worrying is that the untimely demise of the OFR signals a
victory for the Confederation of British Industry’s recent war on regulation.
The CBI repeatedly sticks the label ‘red tape’ on to progressive policies
designed to ensure that private profits are not earned at the expense of the
public good.

Fortunately, many business leaders don’t subscribe to this view, and a number
have expressed dismay at the decision. I hope that the chancellor’s error of
judgement might therefore prompt a more thoughtful debate.

Julian Oram is corporates policy analyst at ActionAid UK