Under the Companies Act 2006 (CA 2006), directors have seven general duties to the company. One of these duties, commonly referred to as the ‘s172 duty’, is ‘to promote the success of the company’. Part 1 of that duty requires directors to do so ‘for the benefit of its members as a whole’, and in doing so, to have regard to the following six factors:

• the likely consequences of any decisions 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 reputation for a high standard of business conduct; and
• the need to act fairly as between members of the company.

Certain companies (see below) are required to include a statement within their strategic report explaining how the directors have complied with part (1) of the s172 duty. This statement is known as the s172(1) statement or s172(1) report.

All companies that are required to produce a strategic report must include a s172(1) statement, with the exception of companies qualifying for the medium-sized companies’ regime.

The s172(1) statement is required at an individual company level. This means that all companies in scope of this requirement within a group, including subsidiaries and parent companies, are required to produce an individual s172(1) statement within their strategic report.

1. Ensure the statement is authentic, specific and balanced.
   The best s172(1) statements are not written as a compliance exercise but rather as a genuine report explaining both positive and negative matters faced by the company in the year, the process for escalating and communicating any issues to the board and how these issues will be considered in the future.
2. Focus on more than just stakeholder engagement, consider impact and behaviour too.
   Identify who exactly the company’s key stakeholders are as not all of them are as obvious as customers, suppliers and employees. Consider how the company interacts with each of them and also how business decisions, behaviours and company culture impact them. Remember to also cover the likely long-term consequences of decisions and the impact of operations on society more widely and the environment.
3. Consider flow and linkage throughout the statement.
   The six factors that the company directors must have regard to do not need to be considered in isolation, in fact, meaningful s172(1) statements link these factors together naturally. For example, the likely consequences of a company decision might impact multiple stakeholders and the wider community as well as company reputation. Cross-reference to other parts of the annual report where appropriate to help link the story together.

For further information and guidance about the strategic report and the section 172(1) statement, visit:

• Factsheet: Strategic Report and Directors' Report
• ICAEW’s guide to directors’ duties and responsibilities 
• Insights article: Ensuring the Section 172 statement is actually used
• By All Accounts articles: Private companies: s172(1) statements and dividends and Co-ordinated s172(1) reporting
• Webinar: Top tips for s172 statements and other narrative reporting
• Webinar: Narrative reporting part 3 - s172 and beyond

For further resources from the Financial Reporting Council (FRC) and the Financial Reporting Lab, visit:

• FRC Guidance on the Strategic Report which includes a section (section 8) covering content elements for section 172 reporting
• Financial Reporting Lab guidance: How to make section 172 statements more useful
• Financial Reporting Lab report: Reporting on stakeholders, decisions and Section 172 which sets out what investors are looking for in s172 statements