ACBE'S RESPONSE TO THE INDEPENDENT COMPANY
LAW STEERING GROUP'S, MODERN COMPANY LAW FOR A COMPETITIVE ECONOMY:
DEVELOPING THE FRAMEWORK
The Advisory Committee on Business and the Environment
(ACBE) welcomes this opportunity to respond to the consultation
document from the Independent Company Law Review Steering Group.
ACBE was set up in 1991 to provide for dialogue
between Government and business on environmental issues, both
of an immediate topical interest and of a longer term nature.
Its role is, in liaison with other organisations to help mobilise
the business community in demonstrating good environmental practice
and management and to provide a link with and focus attention
upon international business initiatives on the environment.
To attempt to address the detail of all of the
issues raised by the Independent Company Law Review Steering Group
is beyond the mandate and resources of ACBE. We have therefore
focused on the proposed links between environmental and financial
performance segmented along the lines of the themes of governance,
and reporting and concentrating most closely on the issues raised
in Chapter 5: "Corporate GovernanceReporting and Accounting".
We agree with the consultation document that
there is a wide spectrum of shareholders with different information
needs, with the shareholder who takes no active interest in the
Company at one end and the sophisticated institutional investor
at the other. We also agree that private investors may be being
overloaded with information in the Annual Report if there is no
Summary Financial Statement (SFS) alternative but it is not clear
exactly which problems the committee is seeking to address or
how a Statutory Prelim's document would ease that situation.
The sophisticated private investor may access
the results announcement on the same day as the institutional
investor by accessing the web site. This instant access to information
is far preferable, in our view, to the option of mailing the announcement,
or a version of it. By post a few days later when inevitably the
market will have moved on.
We consider that the sophisticated investor
will generally, and increasingly, have internet access. We believe
there is no merit in posting a Statutory Prelim's document to
all shareholders, which would inevitably contain rather more detailed
financial information than the SFS and none of the broader issues,
such as environmental performance that shareholders might be interested
in. Investors who differentiate between stocks using these values
as part of their selection basis will be disadvantaged by such
a change and this could potentially lead to a smaller pool of
investments available for selection. At a time when the increase
in awareness and investment practice exceeds traditional stock
selection there is the potential to reduce the competitiveness
of the UK stock market. In particular, we are concerned by the
proposal in 5.34 that companies might wish to offer a summary
financial statement rather than the Statutory Prelims to shareholders
on an opt-out basis. It seems that this would offer shareholders
a choice from three documents (receiving a Statutory Prelim's
document unless they opt for an SFS or a full Annual Report) and
this process adds to cost rather than transparency. We acknowledge
that shareholders investing in companies who only offer a full
Annual Report may be being overloaded with information.
We support fully the option for shareholders
to receive financial documents and other company communications
in electronic form should they choose to do so. We also support
further recommendations on increasing the effectiveness of the
At the present time exemplar companies produce
an operating and financial review (O&FR) and the proposal
for this to be written into statute is supported. The complexity
of business in today's marketplace means that not all the information
required to fully describe the performance of a company is currently
contained within the financial statements and directors report.
The proposed contents of the new O&FR are broadly based on
the existing Accounting Standards Board guidance with a broad
discretion in the way in which this is presented. We welcome the
proposal that the development of good practice should be allowed
to evolve over time, rather than be prescriptively imposed, but
also sound a note of caution.
With the exception of the first two suggested
areas to be included in the O&FR other issues only have to
be included to the extent that they are material. Additional guidance
will be required to augment that which is presently used. Currently
environmental (and social) concerns would not be captured unless
the financial performance of the company is directly impacted
or shareholders affected. This is no better than at present where
only a small number of companies report significantly on the environment.
If the goal of better environmental practice and performance is
to be achieved, as a means of promoting overall business performance
improvement (with environmental reporting reflecting that internalisation),
then more must be done to encourage business. We would recommend
that the new standard setting body should be given the task of
considering how best these issues are integrated within the new
Likewise, the rules on auditor review should
be delegated to an appropriate standards setting body, as at present.
This should also incorporate the role of the auditor in relation
to information presented on a website where the prime concern
will be the completeness and any variation from the hard copy
We look forward to commenting further in November
at the time of the next major consultation and to the final report
of the Committee in Spring 2001.