DTI replies to HCM campaign

On 8 March, acting deputy editor Martin Couzins (pictured below) presented our readers’ feedback on the proposed Operating and Financial Review (OFR) regulations to the government. We called for meaningful HR data to be included in company reports. We believe if companies are not legally required to report on human capital, investors will lack key information to help them make important decisions. This is the government’s response to our campaign:

Thank you for your letter of 28 February enclosing a copy of the petition from your readers. The Accounting Standards Board’s consultation closed on 28 February. I am sure they will carefully consider all responses before arriving at a final version of the standard.

As you may know, we laid draft regulations on the OFR before Parliament in January this year and these have now been considered by both Houses. They will require the directors of quoted companies to prepare an OFR in respect of companies’ financial years that begin on or after 1 April 2005.

Our aim in drafting the regulations was to ensure the new requirement will result in useful, relevant reporting that will assist shareholders to assess companies’ strategies and their potential to succeed. There will always be differences of opinion about what specific requirements should be in a document like the OFR, but I believe we have struck the right balance in the information which we are requiring to be included. We have deliberately taken a light-touch approach, preferring principles over rules.

All companies preparing an OFR will need to consider their employment policies and practices, and we expect that most, if not all, will consider that some aspects of employment are relevant to an understanding of the company. But it will be for the directors of each company to review and identify the relevant factors in their particular case. If they decide that employee matters are not relevant, the OFR must specifically state that such information is not included. This will make it clear to shareholders that the directors have taken a conscious decision that certain information is not relevant. The directors will have to be prepared to justify their decision to shareholders if they are challenged.

I note the strong support among your readers for the inclusion of employee matters in the OFR. I am sure that those working for companies preparing an OFR will encourage and help their company think carefully about how employee matters impact on the performance of the business, and how best to report this in the OFR.

The Rt Hon Patricia Hewitt
Secretary of state for trade and industry

Comments are closed.