Black Sun advises businesses to focus on the story
As BIS launches the next stage of ‘The Future of Narrative Reporting’, with their consultation on a new reporting framework, which considers options for simplifying the format of corporate reporting and increasing accountability, Black Sun, advises that the focus for improving reporting needs to be firmly planted on how to help corporates tell their story better and agrees that by focusing on simplifying the reporting framework and providing a clearer structure could help to give companies the clarity that they need to produce clearer and more useful reports for investors.
Whilst it is generally recognised that the quality of narrative reporting needs to improve Black Sun welcomes the focus on enabling corporates to tell their story better, by linking company strategy and the business model to contextual information, risk, performance metrics, as well as key information on governance, remuneration and sustainability, rather than on further mandates and regulation.
In particular, Black Sun is keen to see greater emphasis on communicating the business benefits of corporate reporting to those businesses who still see it primarily as a regulatory exercise, to encourage them to increase engagement and improve the quality of disclosure.
A further aspect of the BIS proposals is the creation of deeper links between remuneration and how that is linked to a company’s strategy, performance indicators, risk and corporate governance arrangements. In its annual analysis of Annual Reports, Black Sun has seen a year on year increase from 30% to almost 40% of FTSE 100 businesses demonstrating at least a basic link between remuneration and key performance indicators (KPIs). 100% of utilities companies disclosed how remuneration is linked to KPIs whilst only 4% of financial services companies chose to do so.
“The de-cluttering of reports is about sharpening the focus of the company story and bringing it to life,” said Black Sun’s director of research and strategy, Sallie Pilot. “Of course there are some structural issues that need addressing, but a long report is only a poor report if it fails to tell this story in a relevant and material way. The key to improvement is to demonstrate the business benefits of reporting to those responsible for the business so that they grasp the opportunity to tell their story clearly, relevantly and succinctly.
“Whilst many companies understand this, our research shows many companies do not. At the moment only around one in five FTSE PLC boards are fully engaged in the preparation of their Annual Report, and only one in 20 FTSE 100 Chairmen are reporting personally on board effectiveness and governance. The issue of linking remuneration to KPIs brings another opportunity for management to rebuild trust with stakeholders, by presenting how the remuneration policy is underpinned to successful performance against strategy.”