Dictionary definition - what does ‘business success’ mean in the 21st century?

24 May 2016

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There’s a lot to get your teeth into in our latest survey of investor views. What struck me most though was the increasing number of investors and CEOs that see companies having a wider purpose than simply creating value for shareholders. In both this year’s CEO Survey and our investor-based counterpart, over 70% of CEOs and 60% of investment professionals stated their belief that in the 21st century, business success will be redefined by more than financial profit.

“I expect to see a greater demand for measurement of the benefits to society and the ability of companies to provide useful resources to individuals.” USA equity analyst

New methods of measurement

Given that the concept of ‘responsible investment’ and the integration of non-financial information into investment decisions are moving more into the mainstream, perhaps we shouldn’t be surprised with these views. But to someone who, as you may have read in previous blogs, has spent time (some might say too much!) recently looking at the thorny topic of Alternative Performance Measures (APMs), this gave me cause to stop and reflect. APMs have become ubiquitous, and with the imminent implementation of the ESMA guidelines, a topic that will remain in the spotlight. Yet in the grand scheme of things, are we solving the wrong problem? Have APMs become mainstream and should the focus be on truly alternative measures of performance?

The proliferation of non-financial KPIs in today’s reporting and the fact that a number of leading companies already explore how they measure, and indeed report, their wider economic or social impact suggests they’ve already clocked this changing attitude towards business success. But while the sentiment and direction of travel appears clear, its ultimate destination isn’t.

So I ask, in the future, should the ultimate measure of business success:

  1. remain financial, but supplemented by a wider set of information necessary to understand performance?
  2. be truly alternative and no longer be financial profit at all?

Relevance remains key

Which one ultimately wins is up for debate. But regardless, all my years immersed in corporate reporting tell me that unless users of the performance data can see the strategic relevance of the information disclosed, and understand the cause and effect of various data points, neither model will succeed.

We’re once again in the process of performing a review of reporting practices in the FTSE 350 and will be looking out for how companies are reporting on their business success, so watch this space!

In the meantime though I welcome your views on which side of the fence you sit. Or indeed, any innovative examples you’ve encountered of how companies are measuring and communicating their performance.

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

 

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Comments

Hi Robert
Good challenge! There is a lack of clarity of where the reporting model will be in 10yrs time but I would suggest too much focus has been placed on how today's reporting model might look with more information in it - a focus beyond the financial/IFRS numbers.
Perhaps we should be exploring how a new reporting model might look based on technology where IFRS statements might sit alongside other information and it is how users access, collate and interrogate the information?
Either way todays model is changing even if at a snails pace!
Mark

Hi Mark, will IFRS still exist in 10 years time?

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