Financial Reporting Council: Annual Reports and Accounts

Baroness Wilcox Excerpts

Monday 14th February 2011 Lords Chamber

[Lord Naseby]

To ask Her Majesty’s Government what discussions they held with the Financial Reporting Council before the Council issued its proposals to allow companies to stop providing hard copies of annual reports and accounts.

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)]

My Lords, the Government have regular discussions with the independent Financial Reporting Council on corporate governance, accounting and audit matters. My honourable friend in the other place, Edward Davey, the Minister for Employment, Consumer and Postal Affairs, last met the Financial Reporting Council in December. This included a wide-ranging discussion about the Financial Reporting Council’s consultation paper, but the FRC did not mention this specific proposal. However, I should remind noble Lords that shareholders’ right to request a hard copy of annual reports and accounts is enshrined in company law.

[Lord Naseby]

I thank my noble friend for that very full Answer. The 2009 BP report—50 per cent of which I have with me this afternoon—amounts to 108 pages, and the financial standards section amounts to more than 100 pages. Is it not an absolutely crazy idea to put this online when what investors need is a hard copy? Furthermore, is the Minister aware that when companies have something perhaps to hide, it is usually to be found in the notes? If those notes are in the 100-odd pages online, it will be virtually impossible to find them. Would it not end up as almost a passport to fraud?

[Baroness Wilcox]

My Lords, as I just said, as the law stands, you are fully entitled to a printed copy of the report and accounts. So there is no reason why that should occur unless you have asked for it to be online, in which case you can download as much or as little of it as you like. We fully agree that it is very important that the report and accounts are clear, accessible and have the information that shareholders require. That is why we are looking at it now. We are consulting and will report at the end of March on some of the changes that we may be able to make to make things clearer.

[Lord Young of Norwood Green]

Does the Minister agree that there is some environmental gain to be had from people opting to receive these reports online when so many of them are unread or ignored? As she said, there is a question of opting in to this. Does she also agree that it is more important that the report contents are more transparent and accountable, demonstrating that all the remuneration and reward systems are linked to long-term success and showing that active steps are being taken to narrow the widening gap between the highest and lowest paid? While the companies are at it, perhaps they could also tell us how many apprentices they have. Finally, we ought to put our own house in order. We circulate more than 800 copies of this publication, for example. We could put it online.

[Baroness Wilcox]

Yes, my Lords, I suppose that that might save a few trees but at the moment, under law, we have to provide printed copies. I am sure that if your Lordships' House decided that it wished to debate the matter again, we might hear a lot more new ideas. I thank the noble Lord for the advice.

[Lord Newby]

My Lords, it might be the law at the moment that people can request a hard copy but the Financial Reporting Council is consulting on a proposal that it should no longer be a right. Given that many of those who need hard copies—because they are not very familiar with the web—are older people who rely on their shareholdings for their income when retired, will the Minister give a commitment on behalf of the Government that they have no intention of legislating for the change that is being consulted on?

[Baroness Wilcox]

As I said in the original Answer, the Financial Reporting Council is independent and can bring out any suggestions it wishes. The proposal comes from the council and does not represent the view of the Government. As I said, the law states that reports and accounts must be printed and made available. Until it is decided that the law should be changed, that is how it will stand.

[Lord Harrison]

In talking to the Financial Reporting Council, will the Minister discuss the abject failure of many firms to report on their social and environmental policies in order to keep shareholders better informed?

[Baroness Wilcox]

The Financial Reporting Council is independent, and the European Union says that we must have an audit regulator. The council has to fulfil certain requirements in law and it does so. It is not for the Government to tell it how it should distribute information.

[Lord Boswell of Aynho]

My Lords, is there not a danger, which perhaps my noble friend can take on board, that lay investors will be snowed out with too much information and that items may be smuggled through when they are not particularly obvious? Can she counsel all companies to produce clear, intelligible and straightforward summary material as well as the full monty?

[Baroness Wilcox]

Yes, I think that we are all aware that these reports are difficult to work one’s way through; I have found the same myself, as have we all. The narrative reporting consultation is going on at the moment—that is the bit that comes at the front, before the financials. If we can get these things clearer and cleaner, we would all benefit. I thank my noble friend for the advice.

[Baroness O'Neill of Bengarve]

Does the Minister agree that what is needed in this area is less emphasis on transparency, which encourages mere disclosure in bulk, and more emphasis on communication, which has to be differentiated for its audiences, and necessarily should be differentiated for professionals and the ordinary shareholder?

[Baroness Wilcox]

My Lords, that is a very good point and I shall take it away with me.

[Lord Teverson]

Will my noble friend remind us where the Government are in terms of carbon emissions reporting in company reports, which is required under the Climate Change Act? Is that about to happen, and what organisations will be involved?

[Baroness Wilcox]

That is a little wide of the Question and I do not have the information with me. As I said, we are having a wide-ranging discussion ourselves and will report back at the end of March. I have no doubt that there will be a reference to it there.

[Lord Broers]

Does the Minister agree with me that if somebody is trying to hide something in a long document, it is far, far easier to find it by searching a digital document than by paging through pages and pages?

[Baroness Wilcox]

My Lords, that is a fine engineering suggestion and I am absolutely sure that some would agree with the noble Lord on it. However, there are others who still prefer to clutch a piece of paper—as I am doing—for safety’s sake.