12 April 2018
Our community considers whether annual reports could be usefully slimmed down
Amid constant reforms to corporate reporting requirements, we asked the Governance and Compliance and Core community about the quantity of information in annual reports.
Specifically, are companies required to disclose too much? For 39% the answer was yes, with a similar amount (38%) saying no and the rest being unsure.
On the sceptics’ side, one person said: ‘the annual report’s usefulness gets diminished the larger the report gets.’ Another argued: ‘Companies are required to produce more and more information, some of which is really too detailed to be totally comprehensible to shareholders.’
One respondent said: ‘I think the regulators, including the ones who set the accounting standards, are too isolated from real business life, and this has an adverse impact on the rules they come up with.’
Another said: ‘Much reporting is self-congratulatory waffle. It is probably interesting to look at annual reports issued just prior to corporate failure – you will not find much hint of clouds in those!’
Others defended the completeness of the annual report. ‘The information companies are required to disclose is extremely useful in giving investors and others a comprehensive understanding of the company, its culture, its business and its longer-term prospects,’ one response said.
In a similar vein, another said: ‘As a private company, I feel the information we are required to include is generally useful to stakeholders.’
“Much reporting is self-congratulatory waffle”
Despite the volume of criticism about the amount of information required, a clear majority believed that annual reporting was still a useful exercise for stakeholders, with 78% indicating as much. Only 7% believed it was not, with 15% unsure.
One respondent said it was ‘a good discipline. It ensures all companies need to disclose certain critical data in a required form. Without it, some companies may choose to hide certain items.’
Another person said: ‘It is the only time the non-institutional shareholders are given the chance to see a comprehensive report from the company’s board that is not governed by marketing spin.’
There were, however, complaints about the burden of reporting. One person said: ‘Annual reports are useful, but … there is an incredible investment of time, money, and resources in a once-a-year product that is read by a very limited audience.’
Another echoed this: ‘Far too much effort goes into producing annual reports, only for them to be read only by those paid to do so, such as major investors and proxy advisors.’
Reporting companies are put in a tricky position by interested parties.
‘I think proxy advisors and the government sometimes talk out of both sides of their mouths,’ one person said. ‘On one hand, they say to keep things easily readable, concise and understandable, while on the other they continually add new and more complex disclosure and governance standards without simplifying the previous ones.’
A common theme was that technology, particularly websites, could cut back the annual report’s size.
One person said: ‘It would be more useful for stakeholders to receive information in real time. For instance, regulations and best practice could enforce disclosure and transparency in real time, electronically on the company’s website and via direct communication where necessary to key stakeholders, such as institutional investors.’
Others called for specific information to be put online, including reporting for the environment, human rights, anti-corruption and bribery policies and diversity.
One person said: ‘Most of the requirements of the remuneration report are meaningless to most investors and could easily be made available on a website instead.’
There were, however, some reservations about the IT’s near-term prospects. ‘[Although] there are flaws in the annual reporting process, until we move to a time when investors can log in and view verified live financial data for companies – which is some way away – annual reporting is the best way to provide the necessary transparency on performance,’ said one response.
If you are a company secretary or governance professional at a leading UK business, and you would like to take part in or comment on future surveys, email email@example.com