Section 172 – ever asked why?

Post #30: Why understanding ‘why’ is critical to getting reporting right

I had my eyes opened by an auditor yesterday. I must confess that, while I’ve always known that auditors have much to offer the verification end of reporting, it came as a bit of a surprise that I could learn about communication from an auditor too. Maybe, and with all due respect to any auditors reading this, it’s because we’re not talking about just anyone here, but the incredibly knowledgeable and talented Janice Lingwood, formerly of PwC, now advisor to design agency Superunion, and in big demand when new reporting regulations are being debated.

We’ve shared a client with Janice over the last year, and during that time we’ve gained a lot of very useful insights from her about regulation and compliance. But it was when I decided to consult her on our forthcoming reporting book (see our September blog) that I realised that Janice, like us, sees reporting as principally a communication exercise. And, that she agreed with one of the fundamental principles of our book; which is, if you understand why you are doing something, you’ll do it an awful lot better.

During our conversation, Janice happened to mention that, in support of this principle, she runs a workshop for all new joiners at Superunion about why reporting is the way that it is – where the regulations come from, why they have evolved in the way that they have and so forth. So I asked her if she could run one for our team, and yesterday we had a full house at FWHQ for what was a fascinating and useful session, with a lively discussion over tea afterwards. (Too early for bellinis, sadly, but I did have the presence of mind in the post-party haze on 8 November to freeze the remnants of the 15th anniversary cake, and it was no less popular for having been frozen.)

I could write at length about that discussion, but I’ll leave you with just one point that illustrates the principle of the importance of understanding why you’re doing something – how to deal with the new requirement to include a section 172 statement in the strategic report. Next to ESEF, section 172 is probably the hottest subject in the reporting sphere right now.

This new requirement drives me bonkers from a comms point of view for two reasons. First, because it’s so utterly ludicrous to have to make a statement telling readers that certain information is in there, when, if they just read it, they’d know that it was. Second, if we accept (which we don’t) that our readers are too dim to be able to work this out for themselves, then it is even more ludicrous to have to include the section 172 statement, which is about directors’ duties, in the strategic report (essentially the report of the management) rather than in the governance report (the report of the directors).

Janice’s insight was invaluable. She explained that this requirement came not from the FRC, which has jurisdiction over the governance report, but from BEIS (Department of Business, Energy and Industrial Strategy). BEIS has jurisdiction over the strategic and remuneration reports, but none over the rest of the governance report. So if BEIS wants to change something, they can only do so through those two parts of the annual report. Which is why this statement about section 172, which should properly be in the governance report, has been put into the strategic report. (One wonders why the good people of BEIS didn’t just ask the FRC to put it into the governance report to save all this confusion, but perhaps I’ll just not go there today.)

Understanding this background makes it a whole lot easier to be pragmatic about how to fulfil this regulatory requirement without spoiling our readers’ experience of the strategic report – or, worse, confusing them entirely. And what might this pragmatism look like? Simply this: include the weeniest possible comment in the strategic report that fulfils the regulatory requirement of having a statement in there, and refer readers to a fuller discussion in the governance report where this statement truly belongs.

Thank you, Janice, for this valuable insight, which might just be our best reporting Christmas present of 2019!

A merry Christmas to you all from the FW team.

 

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