SESSION TWO FULL DISCLOSURE In this period of heightened scrutiny, stakeholders are increasingly viewing quality reporting as a sign of a well managed company. Good corporate reporting is seen to be at the heart of strong governance, and as such is a vital mechanism for engendering trust and reassurance. As the Financial Reporting Council (FRC) recently stated, effective company stewardship “is dependent on the provision of robust and reliable information by companies to investors, and on audit assurance of that information”. With this in mind, the business case for high-quality disclosure is clear. Disclosure presents an opportunity for companies to demonstrate transparency, which increases stakeholder confidence and enhances corporate reputation. It’s what we at Black Sun call ‘the disclosure continuum’; a process that enables companies to communicate the strength and integrity of their governance procedures and satisfy stakeholder demands for accountability. But, in the last 18 months there has been widespread change in governance practice in the UK. Board effectiveness, diversity, the annual re-election of directors and the role of audit committees have all been the subject of Government consultations. Companies are getting to grips with the requirements of the new UK Corporate Governance Code, while the EU Green Paper on Corporate Governance has thrown the ‘Comply or Explain’ regulation regime into question. So what do the proposed corporate governance reforms mean for UK companies? And what now is the true value of governance reporting? Compliance and communication There is certainly great communications potential in good governance. These days, however, many companies seem preoccupied with whether an annual report should be an exercise in compliance or communication. At Black Sun we do not see compliance and communication as mutually exclusive; in fact, we believe companies can communicate through compliance. The trick is to make this communication engaging and to show that commitment to good governance runs right through the company. And one of the ways to do this is through personalisation. New FRC guidance on Board effectiveness encourages Board members to ‘lead from the front’ by reporting on governance in person. Focusing on how to improve governance reporting to shareholders, the “…While compliance can make for good communication, it goes without saying that companies also need to provide detailed explanations of how they are run.…” FRC urges Chairmen to report personally on their leadership and effectiveness in the corporate governance statements. In a recent Black Sun poll, only 5% of respondents said their Chairman writes his or her opening letter and has input into the company’s governance report. However 71% said that, although they might be written by someone else, the Chairman does input into his or her governance statements. This involvement is critical if companies are to grasp the opportunities offered by communication on governance issues. Principles not provisions While compliance can make for good communication, it goes without saying that companies also need to provide detailed explanations of how they are run. The emphasis on ‘Comply or Explain’ in the early days of governance reporting focused companies’ attention too narrowly. By concentrating on provisions, companies forgot about what was also in the Code – the principles. These are the basic principles of how a good Board and a good governance system should work. 12 © Black Sun Plc 2011 www.blacksunplc.com
