The implications of S172 - what do you need to know?
Section 172 is a part of the section of the Companies Act which defines the duties of a company director, and concerns the “duty to promote the success of the company”. What is noteworthy about Section 172 is the diverse range of stakeholders whose interests are said to feature in the “success of the company” – shareholders, employees, suppliers and local communities affected by company activities are all included. [source: Institute of Directors]
What are the disclosure requirements?
Section 172 of the Companies Act 2006
[Image courtesy of Deloittes]
Companies need to report on how effectively its directors have carried out its duties as outlined in the S172 clause shown above (right).
When is S172 effective from?
It applies to the accounting period beginning on or after 1 January 2019.
The first annual reports required to include this statement will begin in 2020.
Which companies does S172 apply to?
All large UK incorporated companies
Medium-sized companies under S 467(1) CA 2006 deemed to be large regardless of their turnover, balance sheet total and number of employees.
A public company (plc – even an unquoted or privately held one)
A company that has permission under Part 4A of the Financial Services and Markets Act 2000 to carry on a regulated activity
An e-money issuer
A company that carries on insurance market activity
How should the information be presented?
It is acceptable to present S172 as a standalone document or alternatively it may be referred to within the company's annual report as long as both forms include evidence of regard to the matters in S172.
Useful headings include:
The identification of key principle decisions
The identification of key stakeholders
A reflection on decision making
A review of board and management training
A consideration of the longer term effects
There are lots of resources and examples available online that evidence how other companies have prepared and presented their S172.