Tackling the viability statement: practical suggestions, positive thinking – An update

This publication is an update to Tackling the viability statement – practical suggestions, positive thinking now that issuers have reported against the 2014 UK Corporate Governance Code (‘the Code’ or ‘the 2014 Code’) for the first time.


Tackling the viability statement Practical suggestions, positive thinking – An update

Our new guide is an update of our previous document now that issuers have reported against the 2014 UK Corporate Governance Code for the first time.

Our views have not changed – in fact, if anything, they have been reinforced by what we’ve seen. The most successful disclosures, in our view, are those which:

  • set the formal viability statement in its broader context
  • are clear about which of the principal risks are most relevant to viability
  • explain the most important assumptions that the directors have made, whether these are built into the business plan or part of the stress tests applied to it.

We have also continued to test our thinking (and our suggested illustrative statement) on investor organisations, with very positive results. This document reflects their feedback and some refinement of our own views. In particular we have emphasised and added further comments to our illustrative statement on the importance of:

  • focusing more on the ‘real’ long term. Where there is a genuinely long-term aspect to a company’s business model or strategy (examples include many extractive or utility organisations), the disclosures around the viability statement should reflect this.
  • being clear about outcomes. If a company goes into detail about risks or scenarios that could threaten viability, the level of threat they pose should be clear; the standard confirmation of viability is the same for a company with less than a year’s funding in place and the most long-established multinational, so more positioning is needed.

Overall, we have continued to see a steady upward trend in the quality of the disclosures companies have made. But there are still too many examples of boilerplate statements that could have been cut from one annual report and pasted into another, regardless of the nature of the company or the industry. This might, strictly speaking, be ‘compliant’ but it serves little purpose and completely fails to provide insight into risks to solvency and liquidity.

We hope that, whatever their approach in year one, this update will help companies think afresh about the viability statement in year two.