Section 172 statements: Large Private Companies

What is a section 172 statement? 

A section 172 statement usually forms part of the narrative in a company's annual report and accounts. Including a section 172 statement has been introduced as a new requirement for certain types of companies as part of the government's bolstering of transparency and accountability in corporate governance.

Section 172 of the Companies Act 2006 (CA 2006) provides that boards must take consideration of stakeholder interests. The section 172 statement requires directors to explain how they considered these interests when performing their duty to promote the success of the company; it is intended to assist shareholders assess how the directors have performed their duties and is ultimately aimed at encouraging improved corporate governance.

Section 172 statements for this financial year will be subject to greater scrutiny due to Covid-19 as stakeholders will want to understand how and why the directors made decisions in the pandemic (for example, furloughing staff and accessing government funding). There is increasing pressure on directors from investors to make environmental, social and governance issues (ESG) integral to their business plan and considerations. The UK corporate governance framework supports these calls with the introduction of the Wates Principles on Corporate Governance for Large Private Companies and the Companies (Miscellaneous Reporting) Regulations 2018 (“Regulations"). The pandemic may well have exacerbated this pressure and could possibly lead to a recalibration of what “promoting the success of the company for the benefit of the members as a whole” means, as discussed in our blog on director's duties in light of Covid-19. 

"High quality corporate governance contributes to long-term company performance" (Financial Reporting Council) 

Who has to publish a s172 statement?

Any company defined as “large” under section 426B CA 2006 by meeting two of the following requirements:

  • £36m or more turnover;
  • £18m or more balance sheet assets;
  • 250 UK employees (excluding any employees who work mainly or wholly outside the UK); or
  • Private and public companies listed on AIM.

The Regulations require directors to include in their annual report an explanation of how they considered the interests of shareholders and the matters set out in section 172(1) (a) to (f) of the CA 2006 over the past financial year.

The matters in section 172, to which directors must have regard are the likely consequences of any decision in the long-term (s172(1)(a); the interests of the company's employees (s172(1)(b)); the need to foster the company's business relationships with suppliers, customers and others (s172(1)(c)); the impact of the company's operations on the community and the environment (s172(1)(d)); the desirability of the company maintaining a reputation for high standards of business conduct (s172(1)(e)); and the need to act fairly as between members of the company (s172(1)(f).

"The purpose of corporate governance is to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company” (UKCGC 2018)

How to draft a section 172 statement

The statement should form part of the strategic report in the company's Annual Report. For quoted, AIM-listed and large private companies, it also must be maintained on the company website for at least a year. 

There is no specific format to follow when drafting the statement, but The Department for Business, Energy and Industrial Strategy have confirmed that it should be made as a "separately identifiable statement". Importantly, statements should also be meaningful, more than “boilerplate", and should not duplicate information that is found elsewhere in the Annual Report.

This new requirement on reporting may prove challenging to boards navigating it for the first time. It may therefore be helpful to nominate a specific director who has responsibility for ESG and section 172 reporting and mark it as a recurring item on the agenda so that it can be incorporated and embedded into the board's decision making. Identifying who the company's main stakeholders are and understanding their views is also an important first step to considering their interests.

How Brodies can help with drafting a section 172 statement

Please get in touch with Brodies if you require assistance with a section 172 statement or any corporate governance related issues.


Emma Greville Williams

Practice Development Lawyer

Derek Stroud