Stakeholders are for life, not just for Christmas

14 December 2017

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With the steady stream of announcements in recent weeks it has sometimes felt as though the Financial Reporting Council (‘FRC’) must be trying to produce their very own advent calendar – with a tasty new piece of guidance or a shiny new consultation or set of FAQs behind every door!

Many of the key developments over the past year in both UK governance and reporting have centred on ‘the stakeholder agenda’, and the belief that companies should be doing a better job of explaining how they engage with stakeholders outside the boardroom and take account of them in their long-term decision-making. The FRC has a big part to play in delivering on this agenda, but the Government also plans new reporting legislation on stakeholders (and on directors’ pay) - which makes it difficult for the FRC to slot its pieces of the jigsaw into place.

So, with the holidays almost upon us and the reporting season well underway, companies and boards are left in a difficult position: it’s clear that they should be doing something, but how best to respond to the mass of different recommendations and proposals when it’s not clear how they’ll all land?

Navigating the Stakeholder Agenda

Here are the two things we think every company needs to do for the current reporting season, even before all of the final positions are known, in case you’re still thinking about how to respond:

  • Engagement: we think you really should report on how you’ve engaged with your key stakeholders, how they’ve influenced your decision-making and how the board has been involved (as part of their duties under s.172 of the Companies Act).
  • Non-financial Reporting Regulations: if you have looked at the regulations and decided that there is nothing very new there, think again: the focus on stakeholders and the board’s responsibilities under the Companies Act puts a whole new slant on them. Have you thought about the impact your activities have on stakeholders and how this could ultimately affect the interests of the shareholders? Have you explained your policies in the relevant areas of impact? Our view is that many companies will need to look again at their non-financial disclosures and the FRC have recently published a series of FAQs on the regulations that are well worth referring to.

And don’t forget the viability statement: the FRC and investors have been clear that they are not getting value from this and they want more of a sense of the long-term prospects of companies that have extended business cycles. The recent Reporting Lab report on risk and viability reporting advocates a two-stage process that could help more companies do this without extending the period of their formal confirmation.

Telling your story - focusing on the fundamentals

No year-end blog from me would be complete without a reminder of some of the key characteristics of good quality reporting - whether in an annual report, investor presentation, or on a website. As you sit down to write/review your draft annual report, ask yourself:

  • Do your investors and other stakeholders understand your purpose and strategy?
  • What sets you apart from your competitors?
  • What are your key risks, how are they evolving, what are you doing to address them and are they within your risk appetite?
  • How are you measuring success - both financial and operational?
  • Do you present a clear link between your business model, strategy, risks and KPIs?

Good luck in the coming months. My team and I look forward to seeing the fruits of your labour.

Mark O’Sullivan | Director of Corporate Reporting
Profile | +44 (0)20 7804 3459


More articles by Mark O’Sullivan



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