Is regulation always a burden on free enterprise? Or can it help spur greater voluntary action and create a competitive ‘level playing field’? Pragmatism is the present government’s watchword.
OFR update
The government published a revised approach to the introduction of the new statutory Operating and Financial Review on November 25. The regulations will now come into effect for financial years beginning on or after 1 April 2005 (and not 1 January 2005) and will not be enforced until one year after the duty to prepare OFRs has kicked in. It will no longer be mandatory to circulate a hard-copy of the OFR to all shareholders and the government has dropped the requirement that auditors give an opinion on whether the directors have used ‘due and careful enquiry’ in preparing the OFR. Auditors will no longer be required to review ‘the process’ followed in producing an OFR. The focus is still on what shareholders, not wider stakeholders, need for a rounded understanding of the forward-looking prospects of the business. Companies are required to “consider and include information on their environmental, employment, and social and community policies to the extent necessary for shareholders to understand how these are impacting the business and wider community”. The Accounting Standards Board has published its definitive implementation guidance, now expected by April 2005. Contact DTI 020 7215 5000 (http://www.dti.gov.uk)
Governance governing
The European Commission adopted a directive on annual accounts on October 28. The directive requires EU-based listed companies to disclose an annual corporate governance statement as part of their annual report. The directive does not make reporting on CSR issues mandatory, but it does recognise the relevance of environmental and social issues in the context of corporate governance. It entitles companies to provide in their governance statements an analysis of those social and environmental aspects necessary to understanding their development, performance and position.
Regulation is not a barrier to doing business, it is actually an opportunity to improve the way a business operates, argues a report launched on November 8. From Red Tape to Road Signs, published by CORE, a coalition of NGOs, trade unions and academic institutions, finds that countries with high levels of competitiveness also tend to have high levels of environmental and social legislation, such as Canada and Sweden. In contrast, voluntary standards, it says, lead to fewer improvements, the costs of which are borne by the poorest members of society. The report cites among the successes of regulation a 75% reduction in sulphur dioxide emissions since 1990 and a 65% reduction in water pollution levels since 2001. Contact Deborah Doane, CORE 020 7566 1665 (http://www.corporate-responsibility.org)
Ditch the creep!
Avoiding Regulatory Creep, published by the government’s Better Regulation Task Force on October 21, calls for greater consistency and clarity to regulations, such as banking, food standards and health & safety, describing increasing regulation as ‘a hidden menace’ to business. Contact BRTF 020 7276 2142 (http://www.brtf.gov.uk)
Royal Treatment
The Companies Bill (Audit, Investigations and Community Enterprise) received Royal Assent on October 29. The new act strengthens the independent regulation of the audit profession and the enforcement of company accounting requirements. It also provides the powers for the introduction of the new OFR regulations. A new form of incorporation is now possible, community interest companies, which are commercial enterprises seeking a profit for social gain. The government intends now to consult on the remainder of its wide-ranging company law review. Meanwhile, the Queen’s Speech, which was made on November 23, announced Bills covering animal welfare, consumer credit and disability discrimination. Published draft bills include the Company Law Reform Bill and the Corporate Manslaughter Bill.
Is regulation always a burden on free enterprise? Or can it help spur greater voluntary action and create a competitive ‘level playing field’? Pragmatism is the present government’s watchword.
What a marvellous time the early eighties were. Everything was so clear! To the left, the Labour party: its prescription for economic salvation was further nationalisation of private enterprises in order, as Harold Wilson once wryly put it, to “make Marks and Spencer as efficient as the Co-op.” To the right, Mrs Thatcher with her housewife’s scissors to cut red tape and “give managers the right to manage.” How we heard that phrase again and again. Mrs Thatcher won the argument and the centre of gravity about the economy shifted to the right. The collapse of communism and command economies sealed the victory.
The Labour Party returned to power only after it had accepted fundamental economic changes. The present government, while it has dropped much of the strident Thatcher rhetoric, is averse to excessive regulation. It believes that too much regulation is bad for the economy. Otherwise why set up the Regulatory Creep sub-group?
But not everyone buys the line. The latest manifesto of dissent comes from the CORE campaign. Its ‘Red Tape’ study rightly points out that business has often overstated the cost of regulation, and underestimated the benefits. True. But CORE overstates its case. Yes, highly regulated Denmark and Sweden are among the top five countries for competitiveness. But the authors are silent about the benefits that a high level of regulation has brought to North Korea, for example.
Today may be less exciting than the early eighties, but the government’s pragmatic approach commands broad support – some regulation, some threats to regulate, some ‘naming and shaming’, and some show-casing of good practice. From companies, a similar pragmatic approach is needed – fewer ideological objections, less crying wolf. The minimum wage didn’t bankrupt the economy, and a decent level today would provide a level playing field so responsible companies who want to pay fair wages to staff and contract labour alike aren’t disadvantaged by unscrupulous competitors.
COMMENTS