Black Sun Research outlines best practice improvements for Russian companies
Corporate communications agency and specialist in corporate reporting, Black Sun has released a research report tracking the reporting trends of leading Russian companies. The report titled, ‘Towards Best Practice Reporting’ highlights how companies in the region are working towards achieving best practice reporting, and indicates some of the main areas for development.
The Annual Report is increasingly being recognised as an opportunity to focus on what investors and other stakeholders want to hear – joined up thinking, sound long-term objectives, evidence of strong management and a commitment to responsible business activity. However, despite the evidence of the growing Russian appetite for best practice reporting, the Black Sun report has found that Russian companies still have some work to do if they are to meet the standards of reporting adopted by their FTSE 100 counterparts.
In drawing these conclusions, Black Sun looked at six key components of best practice reporting – setting the scene, corporate governance, strategy, sustainability, risk and markets and outlook – to identify reporting trends amongst the 30 largest Russian companies in 2011/2012, as determined by market capitalisation.
Top-line findings from the following sections studied include:
Setting the Scene
The business model can be used to set the scene in the report and explain how the business generates and preserves value in the long-term. This is a key area where development opportunities lie for Russian reporters. Only 33% of those companies studied include a clear articulation of their business model in comparison with 84% of FTSE 100 companies.
Another area for development is corporate governance, and in particular Board evaluation. Only 10% of reports outline their Board evaluation process, compared with 90% of FTSE 100 reports. Research also shows that 43% of the Russian sample group disclose the Board committees actions/achievements compared with 80% of the FTSE 100.
Strategy & Objectives
The presentation of a company’s strategy is a section which Russian companies also need to address with relatively few of them presenting their strategy as an integral part of their Annual Report. Instead reporters are using a more siloed approach to strategy reporting, with divisional strategies and specific strategic objectives being cited more often than overall Group strategies. For example, only 11% of Russian companies specifically link the company’s strategy to KPIs in comparison with 75% of FTSE 100 reports.
As investor focus on financial and non-financial disclosure continues to intensify, companies will need to ensure that sustainability is integrated into strategic decision-making and corporates will need to demonstrate exactly how it is part of the overall group strategy. Russian companies are lagging behind their UK peers in this area with only 41% of companies’ outlining their sustainability strategy in comparison with 79% of the FTSE 100.
Risk Identification and Management
The penultimate area reviewed throughout the research was risk reporting. Whilst 41% of companies studied provide a methodology for the identification of risks, many of these companies only provide basic information of the resulting risk identification and mitigation strategies. This hesitance to provide detail continues within the principal risk discussion. Russian companies appear to be cautious in identifying the potential impacts of the principal risks, however if shareholders and investors alike are to gain a realistic and comprehensive view of how these risks may affect the company’s ability to create value in the long-term, this information is critical.
Market and Outlook
Russian companies are however coming out on top with regards to market discussion of industry and macro-economic trends. This is an area which includes well above the average disclosure and detail seen from the FTSE 100. Evidence of this is clear when it is considered that 56% of companies studied discussed their competitors in detail in comparison to only 52% of the FTSE 100.Many Russian reporters even feature a dedicated market section often characterized by a detailed and highly analytical discussion around market trends and conditions.
David Christopherson, CEO of Black Sun commented on the findings of the report as a whole, “Although the research shows that some challenging areas do still exist for the preparers of Russian reports, I am encouraged by the increased level of awareness which best practice reporting is receiving in the region. I believe there is now a general consensus that many Russian companies are beginning to view the Annual Report as an opportunity to share their investment story and prove that they are long-term, sustainable businesses and that their reporting will continue to drive towards best practice in the coming years”
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