Less perfection and more authenticity needed in FTSE 100 annual reports
Black Sun's 13th edition analysis of FTSE 100 corporate reporting trends has found that only 19% of FTSE 100 companies explain how they have taken stakeholders into consideration when setting strategy, despite the recent new UK draft legislation emphasising Director's duties. The positive news is most companies (95%) discuss engagement with stakeholders and 52% outline expectations for some of their key stakeholders up from 7% last year.
This wider focus on stakeholders is high up on the agenda with the government as part of wider social reform to rebuild trust in UK business. On 11th June 2018, the Government published new draft legislation introducing a requirement for companies to report on how directors have had regard for stakeholders in exercising their duty to promote the success of the company (Section 172), among other things.
With the focus from the government giving a stronger voice to ‘those outside of the boardroom’ per the draft legislation of the evolution of the Guidance on the Strategic report and UK Corporate Governance Code, these measures are broadening the expectations and responsibilities of companies. These new requirements are bound to ‘up the ante' on companies and boards of communicating more transparently.
Black Sun's 13th edition analysis of FTSE 100 corporate reporting trends in 2018, titled 'Less Perfection. More Authenticity’, finds that more authenticity and credibility in reporting is required to build trust among stakeholders. The research shows how governance reform and corporate trust has substantially impacted the reporting debate, which should be seen in context with events over the last 12 - 24 months. Companies increasingly need to communicate an authentic and company-centric corporate narrative and must be wary of simply regurgitating popular ‘buzz-words’ that hold little meaning to the individual company, which only generates more cynicism with stakeholders. The new corporate reporting requirements are introducing concepts that will prove very powerful in generating corporate trust if companies truly embrace the spirit of them.
The Complete 100 report breaks the theme of 'trust' into six key principles which companies are able to integrate throughout their annual report in order to develop transparency and corporate trust:
- Purpose: While 60% of FTSE 100 companies have a defined 'purpose' that goes beyond shareholder value, only 20% of Chief Executives' leadership statements discuss purpose.
- Corporate Culture: 71% of companies evidence how the board has oversight with the corporate culture of the organisation, yet only 28% provide a link between strategy and the company culture.
- Stakeholders: 52% outline expectations for some of their key stakeholders and 47% of chief executive's and chairmen discuss stakeholders in their leadership statements.
- Diversity: 76% of nomination committees provide a commitment to support a diverse pipeline for senior positions, but only 7% clearly explain how diversity supports the company's strategy.
- Wider value creation: 68% express commitment to creating value for wider stakeholders, only 20% discuss long-term value creation considerations in their investment case.
- Long-term thinking: Just over half of the FTSE 100 (51%) explain how the company is responding to market trends, but only 10% highlight strategic timeframes of five years or more.
Anne Kirkeby, Lead Corporate Reporting Consultant at Black Sun plc said "Stakeholders, and society at large, are increasingly expecting more of companies; expecting them to be part of the solution rather than the problem. While businesses have made strides within these six 'key principles' of trust, there is still an opportunity to take it from compliance to best practice - and beyond building authenticity further."
NOTE: This Complete 100 research evaluates the annual reports of companies in the FTSE 100 index through an extensive audit format that contains around 260 questions.
More information on the Complete 100 research for 2018 here
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For further media information please contact: Kaarina Vieru, PR Manager, Black Sun Plc