They are required by law or regulation in a number of countries, this includes the United Kingdom, the European Union, Australia and New Zealand.
The requirement for directors' reports arose out of a general move for greater transparency in corporate governance.
It is useful for shareholders to find out issues such as whether the company has good finances, whether the market has potential, and whether the business has the structural capacity to expand into new opportunities.
As previously named, the Operating and Financial Review was said by Gordon Brown to be unnecessary ‘goldplating’ of EU regulations.
He was widely criticised by charities, social foundations and environmental groups, leading the government to backtrack on its plan for scrappage.
[1] Under section 417(2), directors must explain how their leadership has lived up to the directors' duty in CA 2006 section 172 to "promote the success of the company" with regard to all a company's stakeholders, including the long-term interests of shareholders, employees, the environment, the community, maintaining a high business reputation, and so forth.
This is a watered-down version of the previous requirement under the Operating and Financial Review, which needed the auditor to say whether all the information emerging in the audit was consistent.