The evaluation was carried out by ORC International on behalf of the Department for Business Innovation & Skills (BIS) by conducting interviews with 1,000 UK businesses and in-depth interviews with 15 key company law stakeholders. The report[1] highlights that 85% of companies interviewed were aware of the Companies Act 2006 (the Act) with levels of adoption by companies somewhat lower. The highest levels of adoption were found with regard to access to company information including filing times (73%) and the business review (64%).

Does the Act meet policy objectives?

The evaluation report emphasises that, given that the final implementation phase of the Act was only October 2009, it is still early to be assessing the Act's impact and determining whether the Act is meeting its key policy objectives which include:-

  • enhancing stakeholder engagement and a long term investment culture. According to the report, this has been partially successful with regard to the following measures:-
    • the additional information required in the business review has not been arduous to provide and could be beneficial to shareholders; and
    • changes to directors' duties have the potential to bring about a cultural shift in how decisions are made for the benefit of shareholders
  • ensuring better regulation and a 'think small first' approach. This has been partially successful in particular in relation to:-
    • the removal of the requirement to hold annual general meetings; and
    • the reduction of capital by way of a solvency statement
  • making it easier to set up and run a company. Companies and stakeholders were on the whole neutral about the success of the implemented changes although the changes appear to have somewhat facilitated the process of setting up and running a company.

What could be improved?

The report points out the following areas of improvement which will be considered by BIS:-

  • more clarity and guidance on directors' duties;
  • more clarity on narrative reporting in the business review;
  • removal of director's previous addresses;
  • removal of shareholder addresses from the register of shareholders;
  • greater promotion of the benefits of adopting the new model articles of association;
  • enfranchising indirect investors; and
  • clarity as to benefits to companies of auditor limited liability agreements.

The future of narrative reporting - will the operating & financial review be back?

With regard to one area mentioned in the report as requiring improvement, namely narrative reporting in the business review, BIS consulted[2] separately. This consultation included, among others, the question of whether to re-introduce the operating & financial review (OFR) which had been abolished in 2006. Views on this question were strongly divergent with a majority of companies and business representatives seeing no benefit in reinstating the OFR but with, on the other hand, mixed investor and investor bodies' views as some are seeing the OFR as "more thorough going and strategically oriented providing greater potential to assess a company's prospect". In short, there is no indication yet as to whether the OFR will be back.

What happens next?

In light of the responses to the consultation on narrative reporting and other ongoing consultations, in particular, the European Commission consultation on non-financial reporting by companies and the BIS consultation on "A long term focus for corporate Britain", BIS will now develop policy proposals on the corporate governance agenda by the Budget in March 2011.