Academies: Promoting success of the academy trust and engagement with stakeholder (suppliers, customers and others)

Following on from our article concerning the new environmental reporting regulations which have come into force, there are also new regulations which apply with regards to how the directors (trustees) have complied with their legal duty as set out in section 172(1) of the Companies Act 2006 to promote the success of the company (academy trust). These apply to financial years commencing on or after 1 January  2019, therefore they will apply for the year ended 31 August 2020 for the first time.

The requirement only applies to large companies (as defined by the Companies Act 2006) and requires a statement in the directors’ (trustees’) report summarising how they have had regard to the need to foster the company’s business relationship with suppliers, customers and others. A charitable company qualifies as large if two or more of the following apply:

• Gross annual income over £36m
• Gross (total) assets over £18m
• More than 250 employees

Under section 172(1)(a) to (f) of the Companies Act 2006, directors of a company must act in a way most likely to promote the success of the company, and in doing so must have regard 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
• the need to act fairly as between members of the company

The Department for Business, Energy & Industrial Strategy (BEIS) has published guidance on this new reporting which can be found here.

The Charity Commission has also published a guide: Charities SORP Information Sheet 3: The Companies (Miscellaneous Reporting) Regulations 2018 and UK Company Charities. This explains that charitable companies (academy trusts) should take “promoting the success of the company” to mean promoting the success of the charity (academy trust) to achieve its charitable (educational) purposes.

Naturally there is likely to be overlaps between this new section of the trustees report and other sections. The SORP Information Sheet recognises this and encourages charities (academy trusts) to avoid repetition, maintain the cohesion of the narrative contained within the trustees’ report and incorporate information by cross-reference where appropriate.

Many large companies and charities will have already started to produce their own responses to this requirement and included these within their strategic and directors’/trustees’ reports. We would recommend reviewing some financial statements prior to drafting your response to these requirements to assist you.

Once again, this is a new reporting area for academy trusts and they may face some challenges in drafting their first report.

It is important that trusts look to commence the writing of their annual report sooner rather than later to avoid complications as the finalisation of the trustees’ report draws near. Our recent article “Trustees’ Report – Time to get started” provides some good insight into the importance of producing a first draft early in the reporting season.

If you would like to discuss any of the topics explored in this article, please contact us here.