This blog first appeared on LinkedIn | 17 November 2017 | Written by Rajat Chakraborty
Let us start with the obvious.
The annual report is more than a legal requirement. It’s an opportunity to be transparent about a company’s financial and operational performance, make a bold statement about a brand and unfold the strategy for the future. It also opens the broad avenue to engage with many different audiences.
However, what is not obvious is that each stakeholder will read the annual report for a different reason, and take away something unique.
Of course, the annual report is primarily a technical document for a specific audience. But, in an increasingly stakeholder-driven world, it needs to reflect the impact on businesses of a society with new approaches towards transparency and accountability; and the appropriate communication tools to back it up.
Why the annual report matters?
As stakeholder communication consultants, we often meet companies who ask one simple question: Why should we look at the annual report as a critical communication tool?
Interestingly, companies often claim they don’t get any reaction to their reporting, so they don’t make the effort. On the other hand, investors and the wide fraternity of stakeholders say reports often fail to move ‘beyond the boilerplate’ and has no information value. The result is lack of insight in reporting that creates a vicious and downward spiral.
Why challenge the status quo?
The mindset to stay ‘within the pack’ and not differentiate reporting will always be there. There can be pressure from Boards or other external sources to tread the beaten track and not throw caution to the wind. Our answer is that impactful reporting helps build better relationships with audiences – investors, employees, communities, partners, customers, society – and strengthen corporate reputations.
According to the Global Consultancy EY Report, Europe, the Middle East, India & African (EMEIA) markets, initial public offering (IPO) activities are expected to gather momentum. The annual report plays an important role in IPO communication to provide objective information to investors on current performance levels, along with details of strategy and progress in implementing it. And to provide more insight into how key resources are being managed to meet the longer-term needs of the business.
Better reporting comes with more resources
Not necessarily! Common wisdom suggests that big companies with deep pockets and an extensive stakeholder fraternity have more resources to deploy. However, our experience suggests that this isn’t the case. A company may have big teams or small teams, but what really matters is whether they have the Board’s support in ‘putting transparency first’; to communicate their story effectively and engagingly to a stakeholder universe that puts a premium on trust.
For example, our research suggests 20% of Nifty50 companies in India highlight the profiles of the Board and the senior management team, who play a crucial role in corporate governance; 30% of these companies talk about their leadership team, and only 10% highlights the geography-wise revenue/business mix. Even if we look at information graphics, 26% of Nifty50 companies bring clarity to their narratives with the help of infographics.
Notwithstanding round-the-year multiple communication channels, the annual report remains an important source of information for investors; and the primary means of communication to the market. Our experience suggests that the quality of a company’s annual report (in terms of richness of information and the way it is presented) is indicative of the quality of reporting across other channels.
The ability to produce an engaging annual report (covering important issues and correlations, such as clarity in the business model and strategic priorities, highlighting investments and outcomes, clear links between strategy and KPIs, and between risk and returns) is a sign of good reporting discipline within a company generally.
At the end of the day, good reporting standards certainly lead to great outcomes in an age where effective communication holds the key in every sphere of life.