The UK Strategic Report Regulations, applicable for periods ending on or after September 30, 2013, introduced a requirement for quoted companies to disclose their business model. This brought a requirement to disclose the business model into law for the first time, having been required under the UK Corporate Governance Code since 2010 (on a ‘comply or explain’ basis), and is seen as having codified common market practice.
The new EU Directive on Disclosure of Non-Financial and Diversity Information, expected to come into effect for reporting years commencing on or after January 1, 2017, will also introduce the requirement for companies across Europe, within the scope of the Directive, to disclose their business models. Companies across the EU may find this Lab report helpful as they consider their disclosures.
No definition of business model is provided in either the UK regulations or the EU Directive, and no commonly agreed definition currently exists in academic research or business literature. In practice, discussions on business model often drift into strategy, with the lines between them blurred. At the request of the then Department for Business, Innovation and Skills (BIS), the FRC published non-mandatory Guidance on the Strategic Report in June 2014 which recommends the following information be described in the business model disclosure:
- how the entity generates or preserves value over the longer term;
- how the entity captures that value;
- what the entity does and why it does it;
- what makes the entity different from, or the basis on which it competes with, its peers;
- high level understanding of how the entity is structured;
- high level understanding of the markets in which it operates and how it engages with those markets; and
- broad understanding of the nature of the relationships, resources and other inputs that are necessary for the success of the business.
This report examines the views of company and investor participants on the key attributes of business model reporting, the value and use of business model reporting, together with illustrative examples of reporting favored by investors.
Please click for the following information on the FRC website: