Today, corporates are not only expected to address a wider range of audiences but also to report on a broader range of issues. Companies are now often required to disclose information concerning their impact on the environment, social and employee matters, respect for human rights, anti-corruption and bribery matters.
Despite the significant evolution of corporate reporting and its expanded scope, in many cases, disclosures in annual reports are unhelpfully “boilerplate” in nature. As a result, external stakeholders – including shareholders – gain insufficient reassurance.
Acknowledging the need to rethink corporate reporting, the Financial Reporting Council, the UK’s accounting watchdog, recently unveiled a set of proposals intended to make corporate reporting “more agile” and relevant to “other stakeholders”. In the recently published Discussion Paper, the watchdog makes clear that reporting should “meet the information needs of different stakeholders, not just shareholders and investors”. The FRC argues that reporting should enable readers to “understand how the company views its obligations in respect of the public interest, how it has measured its performance against these obligations and to provide information on future prospects in this area”.
The FRC is right to examine the future of the Annual Report and right to question if in their current form they are delivering much in the way of corporate transparency. Many are far too long and only comprehensible to financial experts. The UK Corporate Governance Code requires the directors to state that the annual report, taken as a whole, is “Fair, Balanced and Understandable”. Too often, annual reports are lacking when it comes to being understandable. We need to find a better way for both shareholders and other stakeholders to gain an insight into a company's past performance, plans for the future and its overall impact.
The FRC’s Discussion Paper is available here and the FRC is inviting comments by 5 February 2021. We would welcome any thoughts you may have as we draw up the IoD’s response.
Carum Basra is the IoD's Senior Policy Adviser (Corporate Governance)