Black Sun Latest Research: Telling the story Our sixth annual analysis of FTSE 100 corporate reporting trends illustrates how companies are meeting the continuing demands of stakeholders and regulators to tell their story in an effective and meaningful way. VISION AND LEADERSHIP Vision and leadership This section analyses how management are featured in the Annual Report. Effective leadership is often seen as a vital element of the success of a company, so it is through these sections that it is possible to convey to the reader the company’s behaviours and attitudes. GOVERNANCE Telling the story Annual analysis of FTSE 100 corporate reporting trends 2010 Five-year trend analysis Quality of reporting A Time • The financial crisis acted as a catalyst for improvement in this area with more companies demonstrating leadership and accountability of management through the Annual Report. • Increasing stakeholder demands for insight into the long-term sustainability of strategy is driving disclosure. Leading reporters: • Demonstrate accountability and give confidence that the report is a reflection of the business as seen ‘through the eyes of management’. • Communicate the character and personality of the business, outlining what it stands for and what its purpose is. • Have honest and transparent narrative which discusses successes as well as failures and plans and challenges for the future. ccountability has been the buzz word for many stakeholders over the past year, with reporting being cited by regulators as one of the primary vehicles for Directors to demonstrate how they are discharging their duties. Director and management ‘ownership’ of Annual Report content has increased again this year across the FTSE 100 and continues to be one of the hallmarks of UK reporting. Whereas in the past, Chairmen and CEOs have been the main faces within the report, the impact of the financial crisis prompted many companies to include more of their senior executives throughout the narrative, presenting a unified team committed to the delivery of corporate objectives. Companies broadening corporate vision The majority of FTSE 100 companies make clear statements about their overall vision or goal – what the company aims to achieve. Yet few give a clear indication of how progress towards achieving this ultimate goal will be monitored and measured by management. Figure 1.1 Figure 1.2 Figure 1.3 MARKET TRENDS AND OUTLOOK To whom does the company make a specific commitment? How many Chairmen or CEO statements set up strategic themes? 78% 69% 81% BUSINESS DESCRIPTION Companies making a clear statement of overall vision: 86% There is a growing demand for companies to report in a meaningful way to all their stakeholders. Historically, companies have been focused on delivering shareholder value but recent changes in legislation, coupled with a broader shift in public attitudes towards wealth creation, have led to more companies addressing the interests of wider stakeholders. Almost half of all companies state a commitment to wide stakeholder groups in their corporate vision while less than a quarter focus solely on shareholders. Clearly for many businesses the interests of shareholders and stakeholders go hand-in-hand and, arguably, value creation for both groups cannot be achieved without the other being considered. As regulation continues to champion the interests of those other than the owners of companies and, as the zeitgeist continues to change, it is more than likely that those companies focusing solely on their shareholders will be in the minority. • • • • ’08 ’09 ’10 STRATEGY Shareholders Stakeholders None 20% 22% 40% Shareholders and other stakeholders 18% Opening statements set the scene For the most part, management statements are a good reflection of what the rest of the report will be like and setting out clear messages with an engaging tone helps to reassure the reader that the company has a story worth reading about. The economic crisis has forced many companies to provide a more honest and transparent narrative which addresses issues head on and works harder to communicate the strategic actions and direction of the company. The number of companies setting out their strategy in the opening statements continues to increase steadily, indicating that Board level ownership for long-term objectives is seen as an important component of disclosure. The quality of reporting in this regard varies considerably, with some companies including the entire discussion of strategy within the CEO’s statement and others merely stating what the long-term goal of the business is. What’s required? Following the codification of directors’ duties in the Companies Act 2006 and, in particular, the duty to promote the success of the company, there has been significant debate as to the role of companies in society, and the extent to which Directors should take into account wider stakeholder groups in reporting. The requirements of the Business Review in the Companies Act make specific reference to helping members of a company assess how Directors have performed in respect of this duty, thereby directly linking the fundamental role of Directors to reporting. The debate as to the purpose of companies will almost certainly run on for many years to come, though for the moment, the legislation strikes a fine balance between the interests of shareholders and other stakeholders; therefore it is important that company reporting reflects this situation. Specifically, the notion of accountability is one that has become ever more prevalent given the events of recent years – a fact that the regulatory regime is beginning to acknowledge. The new UK Corporate Governance Code for example, recommends ‘personal reporting’ by Chairmen on the application of the Code. In addition, the initial indications from Government following the BIS Review of Narrative Reporting are that board accountability for the narrative will be a key part of any changes to the regulatory framework. In addition to setting out strategic themes, demonstrating commitment to corporate responsibility (CR) in some way is increasingly a consideration for companies when preparing their Annual Report. Figure 1.4 RISK How are companies discussing CR in the management statements? CORPORATE RESPONSIBILITY 28% 20% 13% ’09 ’10 Rationale for CR PERFORMANCE 26% Discuss CR issues when talking about business strategy APPROACH TO REPORTING Discussions of the rationale for being a responsible business are on the increase, indicating that companies are endeavouring to demonstrate that there is a business case for CR and that it is not simply something which is done as an after-thought. 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