The ICSA’s 2014 Excellence in Governance Awards took place on 15th November 2014 and it was a night that celebrated the huge efforts of those who strive to improve the quality of annual reporting with a view to increasing transparency for investors.
I had the pleasure of being invited to sit on the judging panel that rewards and promotes good quality corporate reporting, a subject that is embedded within the core mission of the FRC and our Clear & Concise initiative. We firmly believe that Clear & Concise communication should lie at the heart of corporate reporting.
One of the categories that I judged was the Best Strategic Report. Having led the development of the FRC’s Guidance on the Strategic Report, it was personally rewarding for me to see examples of good practice in reporting.
With that in mind, it is important to recognise that the strategic report does not exist in isolation from the rest of the annual report. Fair, balanced and understandable is an important principle which applies to the annual report as a whole and the strategic report is the starting point for the company to tell its story. A best practice strategic report is one that highlights and explains linkages between that report and the annual report more broadly.
Over the last year, I have seen good examples of companies experimenting and being innovative with the structure of their annual reports. The new regulatory regime for the strategic report is a catalyst for ensuring that information that is relevant for investors is given prominence. This will ensure that the key messages are not obscured by detail.
The FRC’s Guidance on the Strategic Report encourages companies to consider the placement of information, including exploring whether there is scope to include complementary information outside the annual report.
Best practice Strategic Reports, and annual reports more generally, should focus on including only those disclosures that are relevant. The application of the materiality filter is an important part of this. What this means is only including the principal risks, key performance indicators and where permitted by regulation, disclosures ‘to the extent necessary’ for an understanding of the development, performance and position of the company.