Social and environmental reporting in UK company law and the issue of legitimacy

This paper seeks to examine the introduction, in the UK, of reporting on social and environmental matters in the Companies Act 1985 (Operating and Financial Review and Directors' Report etc.) Regulations 2005 and the subsequent changes embodied in the Companies Act 2006. It aims to explore the potential impact of these reporting requirements on corporate legitimacy. Legitimacy is important because it reflects, and arises out of, society's support for the activities of the company.

The paper compares the Companies Act 1985 (Operating and Financial Review and Directors' Report etc.) Regulations 2005 with the Companies Act 2006. A postal survey was used to collect data from 79 companies that were affected by the operating and financial review. The reactions of different stakeholder groups to the changes in the law are assessed using secondary data sources, and issues surrounding legitimacy are analyzed using appropriate literature.

Companies that had to comply with the requirements of the operating and financial review were sufficiently prepared for its implementation and, given the choice, preferred the operating and financial review to be statutory. The authors therefore argue that the reasons for repealing the operating and financial review were overstated. Also, legitimacy theory indicates that the new reporting requirements are unlikely to meet the information needs of all stakeholders.

The paper provides a valuable analysis of how corporate social responsibility, which is deemed to be important for sustainable development, has been incorporated in law. It also provides a valuable analysis of how the law will affect corporate legitimacy.