9 - The Operating and Financial Review

Summary

Introduction

The Operating and Financial Review (‘OFR’) is one of the most controversial new developments in recent company law history in the UK. The recent decision to scrap the Regulations before they gained practical effect has now proved equally controversial, being greeted by a wave of opposition in the financial press. This chapter will explore the regulations had they continued to apply in the hope of highlighting their relevance to the general disclosure debate. The objective of this narrative report is to provide a review of the company's activities with an indication of its future potential. As is expressed by the Explanatory Memorandum to the Regulations: ‘The objective of the OFR is to achieve good corporate governance by improving the quality, usefulness and relevance of information provided by quoted companies, thus improving the understanding of the business and its prospects and encouraging shareholders to exercise effective and responsible control.’ Thus the OFR is a report ‘setting out the principal drivers of a company's performance both in the past and in the future’.

According to the DTI, the OFR should ‘cover the issues traditionally seen as key to a company's performance – an account of its business, objectives and strategy, a review of developments over the past year, and a description of the main risks’. The Government adds that the OFR ‘will also cover prospects for the future and, where necessary, information about the environment, employees, customers or social and community issues where that information is important for an assessment of the company’.