More authenticity needed to regain stakeholder trust
Only 6% of FTSE100 companies provide specific examples of how stakeholders were considered in major decisions despite recent 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, Black Sun's 14th edition analysis of FTSE 100 corporate reporting trends in 2019 reveals.
The positive news is that 98% have some level of discussion on stakeholder engagement with 21% outlining expectations for some of their key stakeholders up from 7% two years ago with 20% discussing stakeholders in relation to strategy.
Entitled 'The Ecosystem of Authenticity', the research finds in order to regain trust, companies need to acknowledge that they are part of a larger ecosystem and evidence that they understand their impacts and dependencies, and how these may change over time.
The new research also finds that many of the topics the legislative initiatives are trying to address – such as aligning purpose, values, behaviours and strategy – which will be central to reinstating trust in businesses as we move forward in a new and increasingly complex world, are challenging for companies to address authentically in their reporting.
There is a growing belief that companies must act accordingly and play their part in including stakeholders and wider society to partake in their success, with both stakeholder engagement and understanding increasingly recognised as business issues. 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. This means that companies should be authentic in their actions as well as their reporting, although progress, it seems we have some way to go.
– Whilst the majority of the FTSE100 companies (67%) seem prepared for upcoming reporting requirements - setting out a purpose that goes beyond creating profit, only 47% describe what purpose means in practice, with most struggling to evidence how strategic outcomes flow from purpose
– 57% of FTSE100 companies talk about culture or values in the Chair's statement in the governance report, however only 11% discuss progress in embedding a desired culture, down from 19% last year.
The research report breaks the theme of 'trust' into six key principles – Purpose, Culture, Stakeholders, Wider Value Creation, Diversity and Long-Term Thinking – to encourage companies to embrace in their thinking as well as their communications.
David Christopherson, Black Sun’s CEO said, “It's no surprise that in addition to meeting increased regulatory requirements, more businesses are trying to improve their communications to show transparency. The key benefit of clear and transparent communication is increased stakeholder trust, and in turn a social license to operate.”
Anne Kirkeby, Lead Corporate Reporting Consultant at Black Sun plc said "Stakeholders, and society at large, are increasingly expecting companies to be part of the solution rather than the problem. In order to regain corporate trust, companies must also ensure that that there is no gap between what they say and what they do, and they must acknowledge that their own success will depend on the support of stakeholders".
This research is part of Black Sun’s Horizon Series and is a year-on-year benchmarking of the FTSE100 Annual Reports, which tracks trends and leading practice in the light of the evolving regulatory requirements and reporting landscape. The research assesses the information FTSE100 companies are providing in the narrative sections of their Annual Reports through over 250 data points, which are crucial for articulating the drivers of value creation.
For more information on The Ecosytem of Authenticity click here.
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