Do you explain what makes your business tick? 50% don’t
18 December 2012
By Charles Bowman
I’ve spoken to a lot of people about this and they all tend to agree that
business information, reporting and assurance cannot stand still. Information
that we rely on has to keep up with the dramatic changes businesses are
undergoing as they adapt to fast-moving global issues, economic uncertainty and
new technology. And companies also have to respond to demands for clear and
relevant information from stakeholders – ignoring these demands destroys trust
and generates unnecessary risk.
We’ve found that some companies are responding to this challenge – mainly because of the benefits it brings to their business. Take a look, for example, at British Land’s ambitious approach to corporate reporting. Management has committed to identifying, measuring and managing the wider effects of the company’s activities and this has become a real driver of value for the business.
But our research – Trust through transparency – has found that there is a worrying gap between the most effective communicators and those whose reporting has not kept pace with new requirements, emerging practice and stakeholder demands. And by ‘reporting’ I mean all communications about a company’s performance, not just the annual report. Investors and others have told us that at best they ignore poor reporting – but it can cause them to raise questions about the quality of management and influence their valuations.
Business model reporting
The is one area worth clarifying in your reporting. Our research into FTSE 350 companies found that 77% use the term ‘business model’ (or similar) in their reporting, but 16% of those have no further information at all and only half provide meaningful insight into what really makes their business tick.
As we expected, all companies identify their key performance indicators and a good proportion – 78% – make some reference to these being connected with executive remuneration. But only 25% provide sufficient information for readers to be able to make a direct link between the performance outcomes of the business and how management are rewarded.
With increasing scrutiny of how companies are run by their boards and management, it is worrying to see just 49% of the governance reports referring to the culture and values of the company. Only 34% clearly explain what the board and its committees have actually been doing during the year.
Company reporting – what’s clear and what’s not
It’s not a sense of altruism that drives the best reporters. They do it to communicate effectively with stakeholders and retain their trust. The last thing businesses or capital markets need is the risk of an overnight loss of trust from unseen issues. Just because ‘trust’ doesn’t feature on the balance sheet, it doesn’t mean it can be overlooked.
You can read the full report on the link below:
This is certainly food for thought as many organisations with December year ends focus on communicating clearly with their stakeholders over the next couple of months.
Wishing you a very happy Christmas and a New Year full of inspiring communication.