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Why the resilience statement hasn’t gone away

Author: ICAEW Insights

Published: 18 Apr 2024

Despite the government dropping a requirement for UK plc to produce a resilience statement, some businesses still see the benefits of adopting its principles.

Last autumn, after years of consultation and a series of in-depth reports by respected business experts, the government unceremoniously withdrew proposed corporate governance reforms citing companies’ concerns about extra reporting requirements. 

In business circles, the move was broadly welcomed. At the time, Julia Hoggett, CEO of the London Stock Exchange, called it “a welcome step” that “will boost the competitiveness of the UK”.

One of the crucial axed reforms was a new requirement to produce an annual resilience statement (RS), setting out how a company is managing risks and building or maintaining resilience over the short, medium, and long term.

The RS was intended to replace the viability statement (VS), which looks at whether a business is financially viable into the future. But the VS had become more of a tick-box exercise, experts said, and the RS was meant to look at wider risks rather than just financial ones.

Boilerplate statement

“The general feeling was that the VS had become quite boilerplate, and it wasn’t producing as much information about companies as it really was intended to,” says Jayne Kerr, a Director in UK Public Policy at PwC.

The RS was to be applied to all public interest entities that met the new 750:750 test – large unlisted companies with more than 750 employees and a minimum £750m annual turnover. It was hoped the new rules would help avoid boilerplate responses by way of explanations tailored to each company’s circumstances. 

It was intended to be forward looking and in essence a type of forecasting, and despite the government withdrawing the proposed requirement, some listed companies still produced an RS in their most recent accounts.

FTSE 100 company and global private equity business 3i included a RS in its 2023 accounts. FTSE 100 company Barratt Developments also wrote about its resilience risks in the short, medium and long term in its 2023 accounts. Investment and development company Derwent London is another FTSE company that commented on its resilience risks in its 2023 accounts.

3i first incorporated the RS in its 2022 annual report in response to the Brydon Review, and the company plans to continue to publish the RS, despite no requirement to do so.

The company’s COO, Jasi Halai, who was previously responsible for the company’s finance function, says: “We do intend to retain the RS. We believe it provides the user with an important insight into how our business model remains a going concern and is viable over the short, medium and long term periods.”

The real test however will be in the 2024 accounts. Experts suggest that some companies will continue to draw on elements from the now-scrapped RS. 

Tracy Gordon, a Director in Deloitte’s UK Centre for Corporate Governance, says that although audit committee chairs were not against the RS as a concept, neither were they “wholeheartedly viewing it as a significant benefit and step forward”.

New-style VS

“There was general support that the RS was going in the right direction and that it focused more on the longer term. It could have delivered a broader consideration of resilience. I think for the time being we might see some slightly more beefed up viability statements, building in these wider considerations, but they can’t really replace it wholesale because the Code calls for a VS,” says Gordon, who is also secretariat for the UK’s Audit Committee Chairs’ Independent Forum.

Had the FRC previously known that the RS was going to be pulled, the regulator would likely have consulted on changes to improve the existing requirements of the VS, Gordon says. However, for the moment, there is little the regulator can do given the government’s decision to drop the reforms.

Nonetheless, Gordon says that there is scope for management to take some of what had been due to be considered as part of a RS and improve and enhance any future VS by “trying to give that flavour into the longer term around how you know any emerging risks are being managed”.

PwC’s Kerr agrees suggesting that management could consider what was proposed in the RS and “see if they can incorporate some of the elements of the proposals into their VS”. She points to the reverse stress test as one example where UK plc could incorporate some of the principles of the RS to better describe risks to their resilience.

Experts agree that the proposals outlined for the RS could be a beneficial internal exercise for boards to carry out.

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Further resources

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Corporate governance codes and reports

Access the key reports and codes aimed at raising standards in corporate governance in the UK published in the wake of the BCCI and Maxwell cases.

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Principles of Corporate Governance

Guidance on the key principles of corporate governance and ICAEW thought leadership and discussion on development of corporate governance.

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