Following its August 2010 consultation paper, ‘The Future of Narrative Reporting’ , the Department for Business, Innovation and Skills (‘BIS’) has launched (19 September 2011) a further consultation document, ‘The Future of Narrative Reporting: Consulting on a New Framework’, containing proposals for reform of the current regime. At the same time, BIS also published a discussion paper focusing on executive remuneration in quoted companies.
Consultation paper on narrative reporting:
The Government’s proposals include the following:
- that a new ‘strategic report’ and ‘annual directors’ statement’ replace the existing directors’ report and business review respectively. The strategic report would include disclosures containing high-level strategic information (including key risks) while the directors’ statement would include more detailed disclosures (such as the directors’ remuneration report and the corporate governance statement, for example);
- that the auditors be required to state whether the information contained in the strategic report and directors’ statement is consistent with the accounts; and
that the strategic report of a quoted company provide greater transparency in respect of executive remuneration by the inclusion, for example, of the following:
- one, single, figure showing the total remuneration package for each director;
- details of the link between executive pay and performance; and
- details of the relationship between executive pay and pay levels in the organisation generally.
The Government also seeks feed-back on whether quoted companies should be required to disclose new categories of information in the strategic report (the proportion of women board members, for example), as well as suggestions on what could be done to encourage greater disclosure generally.
Discussion paper on executive remuneration:
The Government’s proposals are aimed primarily at creating greater transparency (this is reflected, too, in the Government’s proposals on narrative reporting) as well as promoting stronger links between executive pay and performance.
Responses to both papers are requested by 25 November 2011. The Government aims to introduce new regulations governing narrative reporting for financial years beginning on or after 1 October 2012.
BIS consultation paper: ‘The Future of Narrative Reporting: Consulting on a New Framework’ available at: http://www.bis.gov.uk/assets/biscore/business-law/docs/f/11-945-future-of-narrative-reporting-consulting-new-framework.pdf
BIS discussion paper: ‘Executive Remuneration: Discussion paper’ available at: http://www.bis.gov.uk/assets/biscore/business-law/docs/e/11-1287-executive-remuneration-discussion-paper.pdf
Additional note: on 1 September 2011, the Financial Reporting Council (‘FRC’) had published two new papers: ‘Effective Company Stewardship: Next Steps’ and ‘Boards and Risk’, which form part of the FRC’s on-going response to the financial crisis of 2007 and 2008. Among other things, the FRC also recommends increased transparency in narrative reporting and will be working with BIS to this end.
FRC paper ‘Effective Company Stewardship: Next Step’ available at: http://www.frc.org.uk/publications/pub2631.html
FRC paper ‘Boards and Risk – a Summary of Discussions with Companies, Investors and Advisers’ available at: http://www.frc.org.uk/publications/pub2630.html