The regulator emphasised that companies must clearly articulate their business model to investors, so that shareholders can understand how it intends to generate value. The edict caught the attention of creative consultancy Radley Yeldar (RY) as it put together its 2018 edition of 'How does it stack up? A review of FTSE 100 narrative reporting'. As part of its research, the consultancy wanted to know why so much company reporting fails to bring meaningful insight into the operations of a business and, more specifically, where business model disclosures are going wrong.
These are important questions for any investor to ask – one we tackled in our feature 'Get Audit Wise' (IC, 18 May 2018). But what RY argues is that full disclosure of a business and its practices doesn't end at the results day financial statements. Indeed, it’s the annual report that should provide the whole picture thanks to the inclusion of corporate governance reports, risk reporting and a more detailed overview of how the business works.
But RY warns that there is no other document within the investor relations remit that "divides opinion so much". While for some it’s one of the most "engaging, creative and rewarding projects of the year", for others it’s nothing more than a "regulatory must-have" – one that holds "limited value". But this could be a short-sighted view. While printed versions of annual reports have long been hailed as containing all the necessary detail for investors to pore over, how many of us can admit to not reading an entire annual report front to back? And as for retaining all that information? Difficult, to say the least. Instead, the internet offers companies a new way to interact, and communicate its message, with shareholders. As RY argues, it’s more flexible and interactive, especially when videos and animation are used to explain complex issues in a visually engaging manner.
But while it’s encouraging to know that companies will experiment with new forms of presentation, it’ll be meaningless if they’re not getting the basics right. For RY, the merits of company reporting are built around four key issues: understanding the business, explaining and measuring financial performance, sustainability issues and how effectively the story is explained.
Applying these principles allowed RY to compile a 'top 10' list of companies whose reporting practices most impressed. Taking the top spot was Land Securities (LAND), which RY credited for having done "a lot of work" on its annual report, particularly the remuneration report, which was deemed "more accessible". Runner-up Mondi (MNDI) was praised for its sustainability report, which clearly identified the company’s commitments and performance measures. And IC Tip of the Year BT Group (BT.A) was credited for its reporting on resources and relationships – an area RY claims many companies fall short on.