The Panel will have a particular interest in companies which operate in niche markets or which are outside the FTSE 350 because they are seen to be facing more risks in the current economic climate than larger, more diversified companies. In looking at companies which provide support services the Panel will focus on those with significant exposure to public spending cuts.
Reports and accounts will continue to be selected from across the full range of companies within the Panel’s remit, including large private companies, and will also be selected for review on the basis of company specific factors and complaints.
Panel letters to companies increasingly include questions about the business review and in particular about the identification and description of principal risks and uncertainties. The Panel challenges companies whose disclosures are boiler-plate or take the form of a long list of generic risks. It considers whether the risks identified are the principal risks and whether descriptions are sufficiently specific to enable a shareholder to appreciate the threat to the company.
For quoted companies, the business review is required to include information about environmental matters, the company’s employees and social and community issues to the extent necessary for an understanding of the development, performance or position of a company’s business. Where companies present such information there is an obvious temptation to focus on good news, but the Panel tries to ensure that the information is presented in a fair, balanced and comprehensive manner as required by the Companies Act 2006.
The Panel will continue to focus on the disclosure in the financial statements of those areas where management has made key judgements.
Bill Knight, Chairman of the Panel said: “Transparency and clarity in financial and narrative reporting is the starting point for shareholder engagement. Bland high level statements in the business review do not help members to judge how the directors have performed their duty to promote the success of the company. There is an obvious temptation for directors to put the best face on things, but a balanced account is more credible.”
Press release
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