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An OFR by any other name? Well, kind of

In the finest tradition of government riven by splits between camps, the UK Companies bill, the biggest change in company law in a decard, has once again been changed at the last minute.

Corporate responsibility-minded readers will recall that not too long ago, the much heralded Operating and Financial Review requirement was scrapped by Gordon Brown at the last minute as overly onerous.

The OFR production requirement on companies was to ask them to disclose relevant social and environmental risk to their business to investors, subject to the judgement of directors.

In light of an EU requirement for a company to begin producing a Business Review for investors, this was apparently justified, notwithstanding that almost everyone agreed the OFR, in principle, was a good idea. For many it was seen as a way of encouraging the the laggards among Britain’s 1300 or so listed companies. Search http://www.ethicalcorp.com for all the background on the OFR.

Now, Margaret Hodge, the sixth or so CSR minister in the same number of years (none of them actually do much, if anything) announced last week that Labour had slipped another requirement into the companies bill, which has not been previously mentioned or consulted upon.

The measure is designed to ask businesses to publish information about their supply chains. However, the business lobby is complaining that the wording is so vague it could force directors to reveal commercially and legally sensitive information.

The bill, which is likely to become law inside a month, will require quoted companies to include in their annual business review “information about persons with whom the company has contractual or other arrangements which are essential to the business of the company”. Companies believe this to be too vague, or at least their lobby groups do.

The CBI and the IOD are threatening to go over Hodge’s head (as much apparently does) to the big Kahuna in waiting, Brown himself, to get all this overturned.

So what’s going on here? The answer is not, and may not become, immediately clear. Is the government back tracking on a backtrack? Or is this the DTI feuding with the Treasury yet again, as it did over the OFR. Perhaps Brown will be too busy to notice, but bearing in mind the voice of the City in government, that seems unlikely.

The FT today quotes DTI officials as saying that the amendment gave directors discretion to disclose relevant information only, adding: “It’s up to their judgement what they put in the business review.”

So is this late change a good way to encourage companies to report on supply chain risk, or at least think about it? Or an overly onerous requirement on business? Post your own comments . Personally I prefer other methods than regulatory to encourage reporting and disclosure, but legislation should eventually be resorted to once all other avenues have been exhausted. Many of these remain unexplored though, which is why this move smacks somewhat of heavy-handedness.

This space, it would appear, warrants watching.

Toby Webb, Editor

2 Comments

  1. The CBI has a ‘Head of CSR & Globalisation’, although it’s hard to see why. He was mauled at a recent CBI hosted breakfast for suggesting in all seriousness that no-one had been more surprised than the CBI when Gordon Brown abruptly scrapped the OFR at, er.. at CBI conference. He claimed the CBI had not lobbied for the legislation’s abolition at all. Clearly the job of the CBI’s Head of Corporate Social Responsibility is to do as much as possible to make certain that Social Responsibility is left to everyone except Corporates. Pretty poor. Like most trade associations, the CBI seems a long way behind its membership. Head of Obfuscation and Globalisation might be a better (and more truthful) title.
    GREENWASHER

  2. I like the idea of backtracking on a backtrack – seems to me like something Sir Humphrey Appelby would’ve approved of.

    Interesting thoughts as always – but I wonder if voluntary positively encouraged reporting has reached its limits? The Carbon Disclosure Project plateaued this year, as there seems to be an unresponsive hardcore of non reporters of CSR information left. Those who will report willingly have by and large done so. Surely regulation is effective when formalising an existing accepted practice, using its coercive power to mop up the last few loose ends based on a societal consensus?

    As far as I can see it, the issue now is one of comparability of data – yes, we may prefer methods other than regulatory to encourage reporting and transparency, but then we end up with a wash of different styles, metrics and KPIs meaning that what transparency is achieved is misty at best . . .

    Matt
    ———
    Rathbone Greenbank Investments

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