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So, just how important is the new Strategic Report as an evolution of UK corporate reporting? Judging by the subtle effects as well as the positive efforts made by some companies its impact may be more wide-ranging than many have expected. And, it may well be that the absence of firm reliable guidance is one of the reasons for the scale of this impact.
Back in September as companies anticipated the new regime there was a degree of angst and hand wringing at the prospect of so much change – across every part of the Annual Report: Strategic Report; Governance Report; Directors’ Remuneration Report and even the Auditor’s Report. And there were of course some unintended consequences of the new statutory requirements – resulting from the demise of the Annual Review and Summary Financial Statements. That there was only draft guidance from the Financial Reporting Council for preparing the new Strategic Report seemed a real concern at the time. In haste, with a looming the activation date of 30 September, the FRC had published only weeks before an internal staff exposure draft as its consultation draft. Many advisers like us surmised it must have been an early draft as it carried ambivalent guidance around business models, included unexpected additions such as objectives and contained questionable instructions about strategy. Still, these inconsistent inclusions supplied plenty of points upon which to respond in the consultation process. But, the unreliable nature of the draft guidance surely didn’t make the task of reporting companies any the easier. At its consultation workshop in October, the FRC referred to publishing the final Guidance on the Strategic Report “early in 2014” but without specifying a date. Suddenly all the 31/12 year end reporting companies realised that they too would only have the guinea pig efforts of earlier 30 September year-end reporters on top of this slightly tenuous draft guidance.
Now one begins to wonder what all the fuss was about? Indeed, the FRC’s tactics look like they may well have paid off. Instead of relying on the guidance as much as they might have done, reporting companies have had to think, and many appear to have done some quite deep thinking before committing words to paper. As companies convert Business Reviews to Strategic Reports with the new mandatory inclusions many seem to strive to make their first Strategic Reports shorter, even if their full Annual Reports are still of comparable length to the previous year. Now the key differentiating content – the stuff that really matters in the narrative – begins to be more visible. Take extractive industry companies for example, all that intensive detail about Reserves and resources and Production statistics goes to the back of the whole Report book leaving the key strategic thinking and its related performance that much more readily apparent. And what about construction companies? There seem to be fewer pages of endless contracts successes and completions in the Operations or Performance Review. And, of course, reporting companies that have previously sent out Annual Reviews & SFS have now to send out the full Strategic Report, so cost has been a major issue and conciseness has been the winner. There has been a real incentive for some to create truly focused and meaningful narrative.
So, is this evolving success of the Strategic Report the brainchild of some machiavellian planning and inspiration at the FRC? Or is it more the unintended consequence of a frightfully British muddle that actually turned out rather well, don’t you know? We hear now that the latest date for publication of the firm Strategic Report Guidance will be June. Now that is clever. Just wait till you can see how the majority of reporters have grappled with producing their Strategic Reports and then adapt the policy guidance to reflect what the best have done. Looking at this clever timing of the final guidance the smart money has to be on Machiavelli more than on good old British muddle.