Investor expectations for Section 172 stakeholder and decisions reporting

30 September 2021

Financial Reporting Council (FRC) discussions with investors highlight that investors are ultimately interested in understanding how a company is progressing towards fulfilling its purpose and achieving long-term success. Information on stakeholders and decisions can help that understanding and is brought together in the Section 172 statement.

The FRC obtained feedback from investors on what information they would like to see in Section 172 statements about stakeholders and the decisions taken during the financial year.

Investors expect to see companies reporting more significant and difficult decisions than usual, especially in light of the COVID-19 pandemic.

Companies should not shy away from discussing thorny issues and should demonstrate how they have considered the impacts and consequences of decisions on different stakeholders.

Information on stakeholders

Many investors would like information on stakeholders that is less generic and which provides sufficient discussion on what really matters to the company and does not avoid negative issues.

Investor’s view information on key stakeholders as critical to understanding the company and its prospects and want companies to set out clearly:

  • Who the stakeholders are that are relevant to a company’s success and how they influence the operation of the business model and delivery of strategy including information on why key stakeholders are important to the company and what is important to those stakeholders.
  • How the company builds and maintains strong relationships with its stakeholders and understands their interests, needs and concerns to enable it to pursue long-term success. This includes information on the actions taken, the board’s role in stakeholder engagement, the outcomes and responses to engagement and how it affected decisions.
  • What could affect the company’s relationships with its stakeholders and how these relationships could affect the company’s pursuit of success including:
  • market factors, trends, regulation and risks that could affect key stakeholders;
    • the mitigating actions taken to address these risks; and
    • the opportunities arising from key stakeholders which the company is considering strategically.
  • What is measured, monitored and managed in relation to stakeholders, to understand the strength of stakeholder relationships and how they are contributing to the company’s success. This includes:
    • metrics used by management and the board to assess stakeholder relationships; prior year comparatives, targets and industry benchmarks to allow trend analysis;
    • explanations of what affected performance; and
    • if the trend is likely to continue, actions to address performance issues.

Information on decisions

Investors wanted companies to set out clearly those significant decisions taken during the year and how they link to the company’s purpose and strategic priorities.

For each significant decision investors would like to know:

  • how the board or management reached the decision, including information used and any long-term considerations;
  • how stakeholders were considered in reaching the decision, including consideration of stakeholder feedback and engagement activities, and the impacts of the decision on different stakeholders; difficulties or challenges in making the decision, including how different stakeholder needs or concerns were balanced, and any short-term negative consequences which were offset by long-term benefits; and
  • the expected and/or actual outcomes of the decision, including how those outcomes affected current performance and metrics, and the long-term implications.
  • Investors are also interested in understanding the process undertaken by the board for reaching principal decisions and its oversight when decisions are delegated to management.

Section 172 statements

The statement should tackle what the company is doing to be successful for the long term and highlight the board’s role in this.

Investors emphasised that the more useful Section 172 statements:

  • consider the other aspects of Section 172 rather than solely focussing on the stakeholder engagement requirements;
  • discuss principal decisions and how stakeholders and other factors were considered in making those decisions;
  • incorporate information on both stakeholders and decisions even if by cross-referencing;
  • are a concise, standalone source of information if cross-referencing is used well; and
  • demonstrate how the company is progressing in its pursuit of its purpose and long-term success and link into the narrative reporting on the business model, strategy and how the company undertakes its principal activities on a day-to-day basis.

The FRC’s report highlights examples that demonstrate an approach to useful disclosures and illustrate the principles that investors have highlighted.

If you would like to discuss any of these issues further, please contact Lee Marshall.

Lee Marshall
Lee Marshall
Partner, Head of Accounting and Business Advisory
Lee Marshall
Lee Marshall
Partner, Head of Accounting and Business Advisory