18 Sep Good stakeholder reporting
What do you tell your stakeholders about the current state of the business and its future prospects? How do you judge what information they will need in order to form a balanced picture and at what stage does this simply become information overload? Most importantly at this time how do you deliver realistic judgements in the light of uncertainties brought about through the impending end of the Brexit transition period and rolling Covid lockdowns?
It’s a question which is exercising the minds of the Financial Reporting Council (FRC). They have called for participants to take place in a new financial reporting lab project examining how company reporting needs to evolve to take account of risks and uncertainties in the current climate. The FRC acknowledged that the scope of the project will develop in the light of contributions from participants. Nevertheless some of the key areas which they intend to explore include whether risk identification, risk management and scenario planning processes are evolving and how this may be impacting reporting and disclosure.
Timelines are also under scrutiny, with the FRC keen to understand whether the pandemic and other issues have necessitated a change in either scenario planning or in the way in which uncertainties are communicated to stakeholders. This also feeds in to the way in which investors are able to factor the information provided into their own decision-making processes; in particular identifying whether the information currently being provided meets investor needs in a changing business climate.
As with previous financial reporting lab projects, outcomes from the review will include a discussion on the types of disclosure which would be most useful in interim reports and the highlighting of best practices. It will be interesting to see whether results from this review echo the findings of PwC’s annual review of corporate reporting in the FTSE 350. Although this review covers periods up to the 31 March 2020 some of the initial impacts from Covid can be seen in the way in which companies started to modify their approach, moving from annual and long-term appraisals to the identification of short and medium term survival challenges.
The PwC report also highlighted how the requirement to include a S172 statement had increased focus on stakeholder engagement. However, just 51% of companies explained within that statement how the board considered section 172 factors when making decisions, with just 38% discussing how they responded to stakeholder concerns. This indicates that there may be more work to do in fully integrating stakeholder considerations within strategy decisions and reporting.
Information overload or information desert; it’s a fine line to walk, particularly when the business sector is facing unparallel change. Nevertheless the principles of good reporting are unchanged; arising from a focus on the way in which the information provided will be received and interpreted by your stakeholders.