What does best practice annual reporting look like?
How do we recognise those companies who are leading the way in best practice investor communications? Nicole Solomon looks at corporate reporting practices and what we look for in our own IR Society Best Practice Awards entries.
As the business environment has significantly changed in recent years, there is undoubtedly an even bigger need for investor relations to take a leading role in corporates. Moreover, there is a greater need for faster, clearer communications across annual and digital reporting. To this end, it seems businesses are taking more of an active approach to engaging with stakeholders and essentially, IR teams need to understand the socio-economic factors as well as the business strategy and objectives to be in a better position to communicate their company’s investment story effectively.
According to the International Integrated Reporting Council (IIRC), there are more than 1,000 businesses worldwide that are using integrated reporting <IR> today as a key mechanism for presenting their investment story, and as a tool to understand and communicate value creation in its broadest context.
In Black Sun’s 2016 annual research report summary, ‘Ticking the boxes, missing the point’ , they highlight that annual reports technically score very well, but one is often left without a clear sense of how companies differentiate themselves, what their investment case is and how they create long-term sustainable value, the key components of a strong value creation story.
Neil Stevenson, managing director, global implementation, at the IIRC, highlights that businesses are increasingly expected to go beyond merely reporting profits to show how they are creating value for the short, medium, and long term. Integrated reporting is thus considered by many as the way forward. From a board agenda perspective, reporting is nowadays considered to be a top management responsibility; Stevenson emphasizes that good <IR> also leads to the provision of information valued by investors; PwC’s recent survey among investment professionals found that a large majority (87%) of respondents felt that clear links between a company’s strategic goals, risks, key performance indicators and financial statements were helpful for their analysis.
Turning to the IR Society’s Best Practice Awards, the award for Best Annual Report is notably one of the most competitive award categories. We’ve always been pleased with the number of companies and the quality of the entries over the past years, and we seek to recognise those companies who are leading the way in best practice investor communications.
The strongest entries in previous years are those with concise and engaging presentation, with good linkages of content throughout the report. The judges favour a well explained business model and a clear and easy to understand reporting framework; it is important that the design and approach of the report is considered for any first-time readers. Accordingly, a concise and visually engaging design is key, as is an integrated approach.
All Best Practice Award entries are scored against criteria based on the Society’s guidelines for best practice in investor communications. The criteria and scoring are based on a quantitative and qualitative element, both equally weighted; the qualitative supporting entry statement – worth 50% of the overall scoring – gives the company an opportunity to share their approach to the award and to highlight what works for the company and its audience.
Going forward, for those looking to enter this year’s best practice awards, perhaps we can encourage companies to consider outlining more of the evidence to demonstrate how the end result – the 2016 annual report – has met the company’s business objectives and supported the investment story. For example, how did the strategy for the Strategic Report influence shareholders and other stakeholders, including for CSR? Were there any unexpected outcomes? The approach could be supported by quantifiable and or anecdotal results other than share price performance. In any case, the results should of course be relevant to the company’s initial objectives and the context of its industry.
One final point to add, given the field is competitive, is that we, at the IR Society, are always looking for evidence of an innovative and effective report that goes beyond the statutory reporting requirements.
For more information on guidelines for best practice annual reporting and overall communication of investment proposition, as well as more information on the Society’s Best Practice Awards, please visit the Society’s website here
Published: 9 March, 2017