NewsCorp’s reputation’s in tatters, with the board claiming they ‘didn’t know’ what was going on. At Johnson & Johnson, the board’s battling accusations of systemic failure and the payment of bribes. Read their annual reports, though, and you’d have thought nothing was wrong.
Clearly, though, something was. So how can the boards of well-run companies differentiate themselves? David Christopherson, CEO of corporate reporting specialist Black Sun, explains how good reporting is a proxy for good management.
1. Tell YOUR story
The best annual reports demonstrate accountability and give confidence that the report is a reflection of the business as seen ‘through the eyes of management’. They communicate the character of the business, outlining its purpose and what it stands for.
2. Be transparent and honest
Don’t be afraid to give a candid account of both success and failure, linking these to your ‘principal’ risks and your plans for the future. This brings a level of transparency which creates accountability for the company.
3. Evidence the company’s ethics and values
Demonstrate the company’s approach to ethical behaviour and show how these behaviours and values translate into the everyday activities of the company.
4. Provide commitment from the top
Demonstrate that the Board and senior executives are committed to acting responsibly. The UK Corporate Governance Code recommends personal reporting by Chairmen. At the moment, only a fifth of FTSE boards surveyed are even involved in preparing the content of the annual report.
5. Explain Board governance and effectiveness
Describe how the boardroom culture contributes to a well-run company. Provide meaningful insight and explanation into how the Board ensures it remains effective in challenging and monitoring executives.
6. Emphasise key risks
Avoid boilerplate risk reporting. Hone down long lists of potential risks to a short list of the real dangers which affect share price, costs and customer confidence. Explain how these ‘principal’ risks are managed and mitigated to provide stakeholders with confidence that these matters are protected against.
7. Describe market conditions
Explain the company strategy in light of what is happening in the market, whether it be good or bad, to create context and provide assurance to stakeholders that you understand your marketplace.
8. Make it strategic
Explain your goals and strategy and link these to your key performance indicators (KPIs) to show how the Board are monitoring progress in achieving its goals. Where possible demonstrate how these KPIs link to remuneration.
9. Keep it short, relevant and accessible
Focus on quality rather than quantity and use graphics to tell the story more clearly. The average FTSE report is now 175 pages (up from 141 pages in 2005) and this year six reports weighed in at over 300 pages
10. Be consistent
Provide a consistent message across all touch points, from your Annual reports to your presentations and corporate website. Communications should be tailored to the relevant audience and medium. Your reporting should not be a one-way communication once a year, but an ongoing dialogue.
- Image credit: Flickr/juhansonin