Update on new reporting requirements for companies - S172(1) Strategic Reporting Statements

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Update on new reporting requirements for companies - S172(1) Strategic Reporting Statements

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Directors duties are enshrined in the Companies Act 2006 (CA). The CA imposes certain general duties on directors, which they owe to the company as a whole, to ensure the company’s objectives are fulfilled.  Section 172(1) CA deals with the directors’ duty to promote the success of the company for the benefit of its members as a whole and in doing so have regard to:


a)    the likely consequences of any decision in the long term;

b)    the interests of the company’s employees;

c)    the need to foster the company’s business relationships with suppliers, customers and others;

d)    the impact of the company’s operations on the community and the environment;

e)    the desirability of the company maintaining a reputation for high standards of business conduct; and

f)     the need to act fairly between members of the company.

In order for directors to meet their duties and for the company’s members to assess how the directors have performed their duties, both throughout the financial year and with a longer-term view, new compulsory reporting requirements (s172 statement) were introduced under the 2018 UK Corporate Governance Code (Code), the Companies (Miscellaneous Reporting) Regulations 2018 (Regulations) and the CA. S172 statements are strategic reporting disclosures and are required to be made by the directors of large and medium-sized companies with financial years starting on or after 1 January 2019; therefore the first compulsory reporting will appear in relation to December 2019 year-end companies from Spring 2020.

Who needs to make the statement?

All large and medium-sized companies with more than 250 UK employees (including those employed by a subsidiary of the company) must now include a s172 statement in the preparation of their accounts. The s172 statement summarises how the directors have engaged with employees and taken their interests into account and the effect of doing so. All large companies (irrespective of the number of staff they employ) must also include in the s172 statement a summary of how the directors have taken regard of the need to foster the company’s business relationships with suppliers, customers and others and the effect that has had on the business (including on the key decisions taken in the financial year).

The statement

There is no set structure for the statement, but guidance on what may need to be included is available in the FRC’s Guidance on the Strategic Report (July 2018)

As mentioned above, the purpose of a s172 statement is to provide information for shareholders and help them to assess how the directors have performed their duties for the benefit of the company and its stakeholders as a whole. In the statement the directors must (1) explain how the company, and in particular the board, have taken account of key shareholder views and interests, (2) describe in the annual report how the board has reached key decisions; and (3) describe how the board’s interests and the requirements of section 172(1) (a) to (f) CA have been met by the board when making decisions.

Although the duty itself has not changed, the new requirement is to place more emphasis on the corporate governance content in the annual reports in order to show, in a company’s disclosure, how their directors have met their s172 duties. Using the list set out above, the statement should focus on matters material to stakeholders, including the long-term factors affecting the company, the company’s wider relationships and the need to act fairly between members as a whole.

Decision making on the long-term factors affecting the company

Section 172(a) CA deals with the directors’ responsibility to consider the likely consequences of decisions for the long-term. The statement should therefore set out the long-term strategy of the company and explain how board decision-making has supported and continues to support that strategy.

The Code does not require the description of specific board decisions; however, it may be best practice to choose one (or as many as can be disclosed) of the key decisions the company has undertaken in the year to reflect on as a general example. This can be used to describe how the company’s strategic priorities support their achievements. In the alternative, a description of how the board of directors reaches its decisions overall can be adopted, however, this may lack real insight into the board and shareholders may demand more details.

Following best practice, for each decision the s172 statement should aim to cover:


  1. the consequences for the company’s long-term success (this may link the company’s shorter-term operation decisions to the long-term drive and goal);
  2. consideration on setting the compnay’s dividend and distribution policy (for example how the directors have determined that the distribution policy leaves the company with sufficient resources to support its long-term goals);
  3. levels of investment required to deliver the company’s long-term strategy and the availability of funds for future obligations; and
  4. the impact on risk management and the company’s principal or emerging risks.


Companies’ wider relationships

S172(b)-(e) CA deals with the consideration of stakeholder relations, the environment and reputation and the report should include a statement of engagement with stakeholders. The statement requires a focused approach to disclosure to show effective management of the company’s key stakeholders. Whilst a company should discuss every stakeholder reference in the business model (including customers, pension schemes, employees, supplies and shareholders), the s172 statement requires focus only on matters of strategic importance and the stakeholders which are key to the business.

 For each key stakeholder group, the statement should include:


  1. why the stakeholder group is important to the company and how the directors have had regard to the need to foster the compnay’s business relationship with that stakeholder group;
  2. how the company engages with that stakeholder group, including on key decisions taken;
  3. how stakeholder interests were considered at board meetings and what influence stakeholders had on the decision;
  4. the impact on affected stakeholders and (where relevant) the environment;
  5. key issues for the stakeholder group, including how these are monitored; and
  6. actions the company undertook as a result of any feedback from the stakeholder group, including actions taken to monitor and mitigate risks.


Acting fairly between the members

Section 172(f) CA deals with the need to act fairly between members of the company. The disclosure required here will depend on the specific circumstances of the company and will be relevant to those companies with multiple classes of shares, minority or dissenting shareholder groups.

Publishing the statement

The statement needs to be included in the company’s strategic report. Furthermore, companies are required to publish their s172 statement on a website maintained by or on behalf of the company as soon as reasonably practicable. 

If you wish to learn more about s172 statements and the duties and obligations that directors owe the companies they serve, please do not hesitate to contact Rebecca Glazebrook or Noel Ruddy.


Thanks to our corporate trainee, Victoria Jackson, for her assistance with this article.

The content of this webpage is for information only and is not intended to be construed as legal advice and should not be treated as a substitute for specific advice. PDT Solicitors LLP accepts no responsibility for the content of any third party website to which this webpage refers.

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