Section 414C

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Section 414 C sets out the purpose and required contents of the strategic report. The strategic report must include a review of the company’s business and a description of the principal risks and uncertainties. In the case of a quoted company the strategic report must include: (a) the main trends and factors likely to affect the future development, performance and position of the company, (b) information about: environmental matters, the company’s employees, and social, community and human rights issues, including information about any policies of the company in relation to those matters and the effectiveness of those policies.

Notes

The strategic report is a publicly available document which must be filed with Companies House for all financial years ending on or after 30 September 2013 (ss. 445 to 447 CA 2006) . It must also be sent to members, debenture holders, everyone entitled to receive notice of general meetings (s423 CA 2006) and nominated persons (s145 CA 2006).

The Financial Reporting Council has provided non-mandatory guidance on the preparation of strategic reports, including a short section on the inclusion of social, community and human rights issues (pp. 24-26). The Conduct Committee of the Financial Reporting Council has the legal authority to review a strategic report and, if the report fails to comply with the statutory requirements, to go to court and compel a company to revise its strategic report under section 456 CA 2006.

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Text

Section 414C. Contents of strategic report

(1) The purpose of the strategic report is to inform members of the company and help them assess how the directors have performed their duty under section 172 (duty to promote the success of the company).

(2) The strategic report must contain—

(a) a fair review of the company’s business, and

(b) a description of the principal risks and uncertainties facing the company.

(3) The review required is a balanced and comprehensive analysis of—

(a) the development and performance of the company’s business during the financial year, and

(b) the position of the company’s business at the end of that year, consistent with the size and complexity of the business.

(4) The review must, to the extent necessary for an understanding of the development, performance or position of the company’s business, include—

(a) analysis using financial key performance indicators, and

(b) where appropriate, analysis using other key performance indicators, including information relating to environmental matters and employee matters.

(5) In subsection (4), “key performance indicators” means factors by reference to which the development, performance or position of the company’s business can be measured effectively.

(6) Where a company qualifies as medium-sized in relation to a financial year (see sections 465 to 467), the review for the year need not comply with the requirements of subsection (4) so far as they relate to non-financial information.

(7) In the case of a quoted company the strategic report must, to the extent necessary for an understanding of the development, performance or position of the company’s business, include—

(a) the main trends and factors likely to affect the future development, performance and position of the company’s business, and

(b) information about—

(i) environmental matters (including the impact of the company’s business on the environment),

(ii) the company’s employees, and

(iii) social,community and human rights issues, including information about any policies of the company in relation to those matters and the effectiveness of those policies.

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Law / United Kingdom / Companies Act 2006

The Companies Act 2006 (“CA 2006”) was amended by Regulation 2013/1970, to include provisions requiring the directors of a company (except those falling within the small companies exemption) to prepare a strategic report for each financial year. Quoted companies must include, amongst other things, information about the company’s employees and social, community and human rights issues in their strategic report. This includes information about the company’s policies in relation to these issues.

The purpose of the regulation is to enhance corporate governance and provide shareholders of listed companies with a greater range of information about the company. It is therefore not designed to combat human trafficking. It does however compel listed companies to publicly disclose information about human rights issues affecting their business, allowing for greater scrutiny of their policies.

The strategic report is a public document which must be filed at Companies House. There is a mechanism for enforcement against the company’s directors and they can be fined for non-compliance.