In October last year, the FRC published its discussion paper ‘A Matter of Principles’setting out its vision of what corporate reporting of the future might look like. This was a major project for the regulator, which our very own Mei Ashelford, Director of reporting intelligence, worked on before joining Gather in 2019.
Mei and Sarah Wood, Director of digital,spent some time interrogating the proposals with the input of some of our clients, before submitting our response to the FRC in February.
The annual report has evolved over the decades with piecemeal regulations requiring more and more information to be disclosed. What we have been left with are annual reports that are often too long, too bloated and not very useful in conveying the right information to the right people in the right way. Or as the FRC put it ‘a document that is confused about its intended audience and purpose’.
The discussion paper is thought provoking; it takes a blank sheet of paper and reimagines the ‘what’, ‘why’ and ‘how’ of corporate reporting, whilst taking a holistic view of the modern world that has, to date, never been taken into consideration, namely the increasing importance of digital technology and sustainability. This review has been long overdue, and we congratulate the FRC for dipping its toe into this otherwise uncharted territory. Although we don’t agree with all aspects of the proposals, and it will take some time, maybe five to ten years, before any regulatory changes (if any) could be implemented off the back of this project, it does raise some interesting questions and challenges that we believe companies should start thinking about now.
The paper opens with a revised definition of what corporate reporting is:
“Corporate reporting comprises information publicly communicated by a company, about the company, for the purposes of enabling its stakeholders to:
These 39 words, which are tucked away in the corner of page 7 of the paper, would fundamentally change the reporting landscape as we know it. Although this definition of ‘corporate reporting’ has never been written down in regulation, it has always been a philosophy that we at Gather have worked by and advised our clients on.
Firstly, regulation over ‘corporate reporting’ would no longer be confined to just the annual report. It would expand to include a suite of information produced by the company, about itself. It would encompass investor presentations, quarterly trading updates, interim results, sustainability reports and other standing data. Arguably, it could spill over into what is communicated more generally through the corporate website and social channels. Although well-established practices ensure that the annual report and RNS notice are consistent, less focus is often given to the related investor presentation and, more critically, to information contained in the corporate website more generally.
Secondly, the users of corporate reporting will widen beyond just investors to all key stakeholders and that the information provided must be decision-useful. So what decisions are non-investors going to be making? For most companies, the key non-investor stakeholder groups will be employees and customers. Current and prospective employees will want to know whether the company is a good employer. Customers will want to know about how products and services are developed, manufactured and delivered. In short, they want to know about how a company behaves. That is not to say that investors aren’t also interested in these topics because they clearly are, particularly with the increasing prevalence of sustainable, impact and ESG investment. The key point is that different stakeholders will require different levels of detail and will consume information in different ways. Therefore, understanding your key stakeholders, and by extrapolation your key audiences, will be critical.
And lastly, stakeholders should be able to ‘hold companies to account’ based on what is reported. A stakeholder can only do this if they are able to make a judgement about what was expected (ie either what a company has said they would do, or what is an accepted norm) compared to what actually happened. Trust is easily eroded when companies are either unclear about what they are going to do or make promises that they cannot or do not keep.
The ‘reporting network’
The main recommendation of the discussion paper is the creation of a ‘reporting network’ which encompasses all forms of corporate reporting. The network would contain three ‘core reports’– the financial statements, a business report and a public interest report – replacing the annual report as we know it, and other ‘network reports’ such as investor presentations, interims, quarterly updates, sustainability reports and other standing data.
We support the idea of a ‘reporting network’ as it will help achieve consistency, however, we are not convinced that the three ‘core reports’ are a better alternative to the existing concept of a single annual report. Great strides have been made in recent years towards a more integrated narrative, and we believe it is a backward step to move to a multi-report model. We believe better quality of reporting could be achieved through simpler and clearer regulations (particularly around sustainability and impact reporting) and increased and better guidance on what ‘best practice’ looks like.
The discussion paper highlights the role that advances in technology could play in the future. It focuses exclusively on tagging and data aggregation. With ESEF (the European Single Electronic Format) and XBRL tagging coming into effect for the 2021/22 reporting season, tagging of data will become a reality in very short order. Initially the tagging will be focused on financial information, but the vision for the future is that non-financial information could also be tagged.
Although we agree that this type of technology has a role to play as we move forward, we believe that digital technology is hugely underused as a communications tool now. Every year, a lot of time, effort and money is invested in the production of annual reports. It is the one time of the year where cross-discipline teams come together to produce something that tells the most up to date story of the business to the outside world. However, a lot of companies simply upload their annual report as a PDF to the website.
Why is this an issue? As shown in Brunswick’s Digital Investor Survey 2021, the corporate website and Google are the top two information sources used by investors to investigate issues and inform investment decisions. Information contained in a PDF does not have the same visibility in search engines as web pages, making it difficult for investors and other interested stakeholders to find the information they are looking for, and for companies it is notoriously hard to measure and understand the level of stakeholder engagement as a result. Compounding this is that corporate websites can easily get out of date very quickly when they are not updated to reflect the most recent content from the annual report.
We believe there is a huge opportunity for companies to harness digital to supercharge the impact of their corporate communications now.
What needs to be reported and how it is reported will change, and this is true regardless of how and when any new regulations (if any) come into effect. Stakeholder expectations are evolving therefore audience perspectives, sustainability and impact reporting, consistency and transparency will all be critical, but fortuitously, are things that you can start thinking about now.
The quality of your reporting can only ever be as good as the evidence that underpins it, and this starts with good governance. Boards and executives need to be engaged on the material issues that matter most to your business and your key stakeholders. Do you have the right purpose-driven objectives, commitments and targets – both financial and non-financial? Are the necessary resources in place to achieve those targets? Are the right processes and controls in place so that progress is made? Is the right data and evidence being captured frequently to monitor and report that progress?
Take this opportunity to review your corporate website. Is it user-friendly? Is it up to date and consistent with your latest annual report? Are there opportunities to move content from the annual report to the website? Can progress reporting be done more frequently through your website? Are there other ways that the website can support your story and corporate communications objectives?
Think more broadly about your communications plan during the planning phase of your annual report. What information needs to be contained in the annual report? Do you need to produce a supplementary report? If so, what is its purpose? Who it is for? How would it differ to the annual report? Could this information go on your website instead? Do you want to raise awareness of your commitments or successes through your social channels? If so, is there an opportunity for a more campaignable approach to reporting?
Given that there is much to consider (as with any new regulations) and changes undoubtedly affect different organisations in different ways, for a limited time we are offering one-to-one sessions with both Mei and Sarah. In these sessions we will discuss our response to the FRC, how the proposed changes apply to your business specifically, challenges you may need to overcome and advise on next steps.
If you’d like to learn more or book a session, please contact Will Davenport, at email@example.com