Anne Kirkeby discusses corporate reporting in ICSA’s G+C Magazine
Lead Corporate Reporting Consultant, Anne Kirkeby, was recently featured in the ICSA’s Governance + Compliance Magazine discussing Black Sun’s latest FTSE 100 corporate reporting research Less Perfection More Authenticity.
Read an excerpt of the article here:
Analysis of FTSE reporting shows honest communication, warts and all, has an integral part to play in raising levels of trust in business. Black Sun has been tracking the evolution of corporate reporting for more than 13 years, examining how companies within the FTSE 100 are responding to a changing environment within reporting legislation and regulation. This year, in particular, has presented companies with numerous challenges going into the 2019 reporting cycle.
Following on from last year’s debate on governance reform and the government’s push for an economy ‘that works for everyone’, companies have had to implement the reporting requirements of the EU Non-Financial Reporting Directive for the first time, while both the draft Guidance on the Strategic Report and the draft of a revised UK Corporate Governance Code have been published, fuelling further debate.
Finally, the draft Companies (Miscellaneous Reporting) Regulations 2018, published in June, set out new reporting requirements in relation to section 172 of the Companies Act 2006, reinforcing the focus on directors’ fiduciary duties.
However, recent corporate failings continue to damage corporate trust and low corporate trust is bad for business. It means investors are less likely to invest, customers are less likely to buy products and banks will be hesitant to provide financing. It is also far more difficult to operate successfully in the long term if employees have lost trust and the company has difficulties maintaining its social licence to operate within local communities. Many of the new topics that the reporting initiatives are trying to tackle − such as aligning purpose, values, behaviours and strategy − will be central for enhancing public trust in business and central to the annual report.
Intangible value drivers
Trust is also a key driver of reputation, a critical asset that represents considerable economic value and can be a competitive advantage, as well as providing resilience. Ultimately, trust is the responsibility of the board. Consequently, the board needs to consider the role of the organisation within its societal context by understanding, prioritising, and balancing the needs of key stakeholders in a way that builds trust. Thereby fulfilling its responsibilities to promote the success of the company for the long term.
“The annual report must be wary of simply regurgitating ‘buzz-words’ that hold little meaning to the company”
Stakeholders and society expect more of companies. They believe companies need to be part of the solution rather than the problem. This is further supported by the growing recognition that ‘good’ business behaviour supports strong financial performance.
Alongside this, the power and speed of communications and social media put corporate trust and reputation under more scrutiny than ever before, making it difficult to control the message in such a transparent environment.More and more, corporate value is being driven by factors that have previously been considered ‘intangible’ and often do not show up in the financial statements; factors such as brand, customer experience, patents and R&D. This puts pressure on companies to find better ways of communicating their full range of value drivers, as well as the issues impacting these drivers, in order to gain the trust of investors and other stakeholders.
Warts and all
Truthful and authentic communication plays an integral part in combatting low levels of trust, however it is not simply a matter of transparency and more communication.
As part of that, an annual report needs to adhere to the fair, balanced, and understandable principle and it needs to communicate accountability. However, this does not necessarily generate trust on its own. An authentic and company-centric corporate narrative is important and the annual report must be wary of simply regurgitating popular ‘buzz-words’ that hold little meaning to the individual company, generating more cynicism with stakeholders.
“Truthful and authentic communication plays an integral part in combatting low levels of trust”
New reporting requirements introduce concepts that can prove powerful in building trust if companies embrace the spirit of them. However, they may equally serve as no more than a smoke screen for those who do not apply them earnestly. Evidencing which of the two categories your company fits into is vital, and authenticity will be absolutely key to doing so.
Every company can produce a best practice, award-winning annual report, but most do not tell an authentic story that communicates their uniqueness – warts and all – in a way that builds trust with investors and other stakeholders. What is needed is less perfection and more authenticity, while acknowledging that the imperfections make a corporate narrative honest and relatable and through that, believable.
Principles of trust
New regulations and the plethora of voluntary reporting guidance frameworks aim to make companies more accountable, responsible, future-proofed and ultimately more trustworthy.
This year’s FTSE 100 corporate reporting research from Black Sun identifies six ‘principles of trust’ focused on the following themes: Purpose, Culture, Shareholder voice, Diversity, Wider value creation and Long-term thinking. Individually and collectively, these principles contribute to developing corporate trust.
Read about the ‘Principles of trust’ and the remainder of the article here.
To request a full copy of the report and to have a conversation with us exploring how we may help you with your next annual report, get in touch.