RegulationCorporate GovernanceKeep the flame of OFR burning

Keep the flame of OFR burning

The chancellor’s decision to abolish the operating and financial review has produced extreme reactions.

Although the intention was to remove red tape, its demise was not entirely
welcomed by investors, shareholders and industry. In a letter last month to the
DTI, a group of investors and corporate governance activists warned that
companies’ reporting efforts could be ‘destabilised’ due to a lack of government
guidance.

The removal of the OFR ought not to herald the end of transparent reporting.
Companies should not shelve their plans to provide forward-looking information
that may affect their future financial performance. On the contrary, pressure
from investors may necessitate that they do this.

That said, we need not view the OFR through rose-tinted glasses. It never set
out to be prescriptive. Although it provided, in theory, an opportunity to
evaluate the impact of business decisions on the bottom line, it comprised
suggestions rather than mandatory guidelines.

The European Union’s Business Review ­ viewed by many as less prescriptive ­
will go some way to filling the vacuum left by the OFR. And the environmental
key performance indicators launched by the Department for Environment, Food and
Rural Affairs (Defra) in January look set to assist firms in assessing the
environmental impact of their business practices.

But there are still many factors unaccounted for. For example, it’s important
not to discount the value of human capital in sustaining a prosperous business.
And who better than the FD to make the link between human capital, customer
retention and the bottom line?

The FD’s analytical skills should be put to good use across the company so
that the business ­ and investors ­ can better understand factors affecting
performance. I believe forward-looking businesses will turn to the finance
department for this critical perspective.

The OFR may have been killed off, but FDs must ensure that the principle of
improved business reporting survives. To let the flame extinguish would be
irresponsible and shortsighted.

George McDevitt is vice-president of finance at Oracle UK, Ireland and
South Africa

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