Good reporting is good reporting - especially in uncertain times: Our annual review of reporting practices in the FTSE 350

At the beginning of this reporting cycle, I would have confidently predicted that the key takeaways from our annual review of reporting would relate to how companies had responded to the new reporting regulations: the s.172 statement, stakeholder engagement and updated governance reporting requirements in the 2018 UK Corporate Governance Code. But of course so much has changed since the first companies in our survey reported back in April last year. For many March 2020 year end reporters the focus shifted from the usual annual update to their short and medium-term survival. And, more recently, attention has turned to how they assess their longer term prospects.

This focus has only emphasised the fundamental importance of the stakeholder agenda and reminded us that the principles of good practice reporting - focus on telling your strategic story - remain relevant whatever the situation. And yet our review showed that 51% of companies only set out their strategy at a high level, meaning that they include some sort of statement of strategic intent but little or no information about the actions they will take to achieve that strategy or the timescales by which they hope to do so. Without this clarity it is difficult to understand the substance of their plans and what has been achieved. Is the information on performance that they provide in line with their expectations? Did it come about because of the actions taken by the company? Or was it simply due to fortunate market conditions? This is why linking strategy to other elements of reporting like KPIs, risks or business models is so important. It brings to life how management is running the business.

Of course the issues we were thinking about before COVID-19 also remain important. The introduction of the requirement to include a s.172 statement has brought stakeholder reporting to the fore. Whilst many companies have previously talked about engagement - particularly with employees - there has been a formalisation of disclosure on engagement in the period as a result of the new requirements.

Our perspective is that two areas set the leading reporters apart from the rest. Firstly, the requirements aren’t to simply explain how a company engages with stakeholders. The leading reporters explain what issues stakeholders care about and how the company has responded to them. They also expand their disclosure to explain how stakeholders’ views have been reflected in their key strategic decisions and what trade-offs between stakeholders have been considered. And secondly, leading reporters recognise that s.172 goes beyond a focus on stakeholders and processes. They also explain how long-term factors are taken into account and how the business impacts the environment and the community. 61% of companies combined their s.172 disclosure with their insights on stakeholders, and this is fine as long as these two areas are covered in the disclosures.

This takes us to the new 2018 UK Corporate Governance Code, which encourages greater transparency on the activities of the board and what it has achieved. This should include how they promote and monitor company culture, drive strategy and ensure that the stakeholder perspective is considered. Our review suggests more attention has so far been paid to the more procedural changes of the Code than to this new style of reporting - whilst 45% have provided some insight into how the board have contributed to the delivery of strategy, the reality is that only a few of the leading reporters provide real insight beyond references to how the board has reviewed priorities or attended strategy away days. Likewise, whilst 28% of companies provide some insight into how the board monitors culture, most of the rest simply refer to what that culture is and add little about the board’s role.

The pandemic, and the measures taken to address it, have further emphasised the importance of the stakeholder agenda and how companies assess their medium to longer-term prospects. Against this backdrop over the coming months we will continue to explore and challenge the reporting landscape around the following 4 key themes:

1. Breaking down the boundaries - how can companies keep the focus on what is strategically important to your business, look for opportunities to break down silos in their annual reports, including between the strategic and sustainability information- and make best use of technology and other channels of communication to meet stakeholder needs?
2. Reporting on time horizons - how can companies build on the new levels of forward-looking information created as a result of COVID-19 to provide real insight into the medium to longer-term prospects and how business models are evolving to secure their long-term sustainability?
3. Striking the right balance - how can companies and boards most effectively report on the balance they strike in their decisions between the interests of different stakeholder groups, and show how this is consistent with their underlying purpose and values?
4. Focusing on purpose, culture and risk - the 2018 UK Corporate Governance Code was issued in the context of a number of high-profile corporate failures and scandals. So what more can companies do to show how their governance addresses the measures that the Code put in place to tackle those issues?