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Mirror, mirror on the corporate reporting wall
15/09/2015
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The majority of the UK’s listed companies need a mirror for reflection before they use a lens to refine and focus their corporate reporting narrative messages on key stakeholder groups. FutureValue’s experience of reviewing the reporting of UK’s top companies in preparing the long lists for the Strategic Report Accolades reveals that some use that reporting lens very well and focus it highly effectively. Instilling a sense of certainty in their shareholders they enjoy the mutually reinforcing cycle of consistent market support and strategic performance. Others, regrettably reflecting the majority of the UK’s premium listed companies, would do better to turn that lens into a mirror and see themselves as others see them through the reporting messages they broadcast. It would help them to realise the benefits they are foregoing, and address their shortcomings.

At the end of a reporting cycle when we step back and have to review again the better examples of corporate reporting in fairly swift succession we see the general patterns of reporting emerging. The review process also makes us wonder why, if Strategic Reports are intended primarily for shareholders, do all companies not work harder to impart unequivocal reasons in their Strategic Report why investors should invest or stay invested? A powerful driver of a premium listing is the access it affords to market liquidity. Access is one thing, persuasion is another. Companies need to give compelling reasons why markets should invest. Too many Strategic Reports fail to do that as the following questions and observations amply illustrate:

  • Why are reported business models all about ‘what’ and ‘how’ but rarely about ‘why’? It is the ‘why’ that matters to investors, yet too few companies add that persuasive evidence as to why their core model is profitable and will remain so going forward
  • Why do so few companies convey a clear sense of strategic direction through clear expression of intent, ambition or at least mission or purpose? Financial goals and operating objectives on their own offer the investor little information and conceal strategic direction.
  • Why do so many companies dress up an operational plan as being the strategy of their business? Are they unable to take a longer term view?
  • Why do key performance indicators still focus so much on financial achievement and outcomes rather than on ongoing performance and the capacity for strategic management?
  • Why does the reporting of risk too often focus on generic and operational factors that are more about the risks of simply being in business – risks that the investors will have factored in even before looking at the sector?
  • Why do so many companies still treat the social and environmental dimensions of their businesses as some add-on issues to be addressed compliantly as if part of a parallel universe only loosely connected to the business?

We could go on. But, if the overriding answer to these questions is that Annual Reports don’t matter then companies would do well to heed the insight from the recent CFA Society of the UK’s survey of its members that suggests otherwise. Mere compliance cannot be the level of achievement the legislators and regulators intended when they went to the trouble of creating these reporting standards. And, despite the exhortations of the FRC to experiment and be innovative, innovation in UK corporate reporting remains at best modest and incremental. All too many seem to copy the efforts of the few who are frequently the exemplars. Yet, copying simply does not cut the mustard. Arguably, as we move to third cycle of the Strategic Report, copying simply will no longer be enough as compliance becomes a tougher and more company-specific proposition.

So, mirror, mirror on the wall – which is the fairest company of them all? To discover the answer to that question, download the long lists of companies in the frame for the 2015 Strategic Report Accolades, and watch this space for the short lists. The winners will be announced on 30 September at the Evolution of the Annual Report conference.