Each year a sample of portfolio companies are reviewed for compliance with the Guidelines. Overall the most recent review demonstrated that compliance by portfolio companies had not significantly improved the quality of disclosure in any one Guidelines’ criterion and that the quality of disclosure was weaker against a backdrop of higher standards seen in the FTSE 350 and a lack of awareness of the changes to the requirements in the Guidelines.

Criteria where some weakness was noted included review of financial position; balanced and comprehensive analysis of development and performance during the year and position at the year-end; financial and non- financial key performance indicators; trends and factors affecting the future development, performance or position of the company; environmental factors; and human rights issues.

The observations below reflect the trends identified from the most recent review and where additional focus will result in an improved level of reporting:

• The importance of the narrative describing how the business has performed in the year cannot be overlooked. The weaker examples provided a summary moving down the primary financial statements, without linking how these worked together. A truly balanced and comprehensive analysis of development and performance during the year and position at the year end should focus on performance against the strategic objectives and reflect both the operational challenges and successes achieved in the year – refer to section 5 of this guide for further detail.
• The temptation to issue an annual report as a backwards looking narrative on performance is understandable, given the financial information disclosed relates to a period completed. However, it is essential to provide a context of the trends and factors affecting future development and performance in relation to the wider market and how the ongoing business expects to perform in what can often by dynamic circumstances. This discussion should consider both the wider market environment that is impacting the business and how these are shaping the strategy and decisions made today – refer to section 11 of this guide for further detail.
• The inclusion of commentary on human rights is a requirement under the Guidelines and this is in line with increasing regulatory emphasis, such as the introduction of the Modern Slavery Act 2015 (impacting financial years ending on or after 31 March 2016). All companies need to consider how they are addressing compliance with human rights matters and include a discussion on this, which could be, for example, by considering the supply chain aspects or labour practices in the UK and overseas – refer to section 14 of this guide for further detail.
• The topic of gender diversity needs to be a greater feature of the annual report, with stronger narrative on the policies in place as well as presenting the breakdown of the metrics for the number of people of each sex at the director, senior manager and employee level – refer to section 15 of this guide for further detail.

All the Guideline areas require careful consideration to ensure good practice can be achieved and this guide provides both an understanding of what good practice looks like and some actual examples from the most recent review. The examples set out elements of good practice for the specific criteria disclosed. The Group will review the disclosures in the annual report as a whole when reviewing compliance.