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10 tips for preparing a Section 172 Statement

02 November 2020. Published by Emily McGregor, Partner

For financial years beginning on or after 1 January 2019, all large private companies must include a statement in their annual report and accounts explaining how the directors have had regard to the matters in section 172 of the Companies Act 2006 when performing their duties.

Section 172 imposes a general duty on directors to act in a way that he/she considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, having regard (amongst other matters) to:

  • the likely consequences of any decision in the long term;
  • the interests of the company's employees;
  • the need to foster the company's business relationships with suppliers, customers and others;
  • the impact of the company's operations on the community and the environment;
  • the desirability of the company maintaining a reputation for high standards of business conduct; and
  • the need to act fairly as between members of the company.

Section 172 is not a new addition to the Companies Act 2006 and directors are well accustomed to considering the factors therein as a matter of course in their decision making.  However, the introduction of a specific requirement to report on exactly how the directors have had regard to those factors is novel and requires careful consideration and preparation by companies caught by the reporting regime.  This blog contains 10 practical tips for those companies to consider when tackling the preparation of a section 172 statement. 


1. Read the guidance: BEIS, ICSA and the FRC have produced various detailed guidance notes which are a helpful starting point in understanding regulator and investor expectations. 

2. Identify all group companies subject to the requirements: The requirement to produce a section 172 statement applies to any "large private company" incorporated in the UK which meets two or more of the following criteria:

a. turnover of more than £36m;

b. balance sheet total of more than £18m; or

c. more than 250 employees.

The requirement applies to all such large private companies, including subsidiaries (there may therefore be multiple companies within a group required to prepare their own individual section 172 statements). 

3. Start early: During the course of the year, identify and make note of the key board decisions that are of enough strategic importance to the company to warrant being included in the section 172 statement – this will be easier than compiling the information at the end of the year.  When preparing board papers, consider including notes to discuss relevant stakeholder interests and factors under section 172 – this will help to guide the board discussion and provide evidence of compliance.  Consider putting in place training, policies and processes to support the company's strategy in light of the section 172 duty.  


4. Include more than just a statement of compliance:  A simple statement of compliance is unlikely to be sufficient. Guidance states that the section 172 statement should include details of:

a. the issues, factors and stakeholders the directors consider relevant in complying with the section 172 factors, and how they have formed that opinion;

b. the methods used to engage with stakeholders and understand the issues to which the directors must have regard; and

c. the effect of that regard on the company’s decisions and strategies during the year.

5. Avoid a box-ticking exercise: Avoid taking a purely checklist approach to the section 172 factors. The statement should: 

a. identify the significant decisions taken during the year; 

b. meaningfully explain how the key stakeholders affected by such decisions have been identified and engaged;  

c. reflect on how the significant decisions were made in light of such engagement and the relevant section 172 factors, and how any conflicts have been balanced (including difficulties as well as positives); and 

d. address the implications of feedback received from stakeholder engagement and set out any future actions that are planned as a result. 

6. Use an appropriate level of detail: Companies can use their discretion to judge what level of detail is appropriate in light of the size and complexity of the business (provided that the statement is meaningful and informative for shareholders).  Avoid the temptation to include lots of information about a matter specified in section 172 if it has limited relevance to the particular decision being discussed.  


7. Publish in the correct place: The section 172 statement must be a separately identifiable statement within the strategic report of the company's annual report and accounts. The statement must be published on the company's website, either as a standalone statement or by publishing the entire strategic report or annual report. 

8. Make it user-friendly: There is no set format or structure for a section 172 statement, however it should be as concise and user-friendly as possible and be consistent with the rest of the annual report. 

9. Use cross-references: It may be helpful to include cross-references to detail included elsewhere in the annual report to avoid unnecessary repetition.  A subsidiary company may also cross-refer to a parent company’s explanation of the group's policies and procedures, provided it is contained in an accessible report and the subsidiary explains how its directors have applied or reflected the policies or decisions taken at group level.

Other reporting requirements

10. Consider any other applicable reporting requirements: Consider whether any additional reporting requirements apply – for example, UK incorporated companies with more than 250 UK employees must include a statement in the directors' report in the annual report summarising how the directors have engaged with employees and taken account of their interests.