Investor Communications with Richard Carpenter

It’s just not ‘understandable’

Here’s some breaking news from the International Federation of Accountants (IFAC): ‘the understandability of financial reports has not improved’.

That’s one of the claims in IFAC’s new report published last week. Grandly entitled Financial Reporting Supply Chain: Current Perspectives and Directions, the report documents a survey of over 340 participants from all sectors of the ‘financial reporting supply chain’ worldwide.

Now this report is potentially really good. The effort that’s gone into it and the areas it covers could be really interesting …well, to those of you charged up by the corporate reporting world, at least.

The trouble is it just gnaws away at your very soul with its lack of communication. I like this type of stuff and yet even my mind was wandering away to the joys of what I might be having for dinner by the time I’d reached page two. It’s about as text heavy as it can get and, as for key messages, forget it.

It’s a real pity because, as I say, the content is good. It even points out areas of concern about reporting including ‘Reduced usefulness due to complexity’, ‘Focus on compliance instead of essence of the business’ and ‘Regulatory disclosure overload.’ I agree with all of this wholeheartedly.

It goes on to recommend further necessary improvements including: ‘Encourage short-form reporting focusing on the material issues.’

Great stuff. And just a tad ironic in this case. If only anyone who actually needs to understand these messages could be bothered to read the 60-page document, with its wholly indecipherable graphs they would agree that short-form reporting should be all the rage.

Maybe the most important thing this report says about financial reporting is the bit it doesn’t actually say: Good reporting is just as much about good communication as it is about plonking lots of text and poorly-designed graphics onto a page. If no-one can be bothered to read your reports then they fail.

Obviously, it helps if you make their ‘understandability’ better too.

Contractually speaking

We’ve started our annual analysis of the latest FTSE 100 annual reports. Here’s a quick heads up to all of you still burning the midnight oil on your reports…

Most larger quoted companies are beginning to take the enhanced business review requirements into account – even though they aren’t legally obliged to do so until the next reporting season. They obviously think that there’s no harm in having a dry run.

To that end, we’re seeing a bit more forward-looking information and non-financial KPIs are even on the rise.

But the one area of the enhanced business review which companies still don’t seem to be getting to grips with is including information on contractual arrangements. This is the so-called ‘supply chain provision’ introduced by the Government as a last-minute amendment just as the Companies Act was being passed. Of course, in reality it should cover all contractual arrangements that could be material to the business but most commentators preferred to think of it in supply-chain terms as it was being passed.

Whatever you think of it…most companies aren’t really thinking about it at all yet this year. That could make it quite a difficult area to tackle when it becomes a legal requirement for the 2009 reporting season.

We told you so the first time round

Those lovely people at the Accounting Standards Board (ASB) have provided some more narrative reporting guidance for quoted companies.

If you feel weighed down by the raft of new regulations and legislation in recent years then DON’T PANIC! This isn’t anything really new…the ASB is just trying to be a bit helpful by providing a little bit of guidance. Oh, and it gives a bit of a puff to its own voluntary Reporting Statement on the Operating and Financial Review, too.

Basically, the ASB has trawled through the enhanced business review and then cross-referenced that additional information back into its OFR Reporting Statement. Don’t know what that is? Well…that Reporting Statement was originally the OFR Reporting Standard but when the mandatory OFR was abolished the ASB obviously felt a bit miffed at all the work it had done that would then be wasted so it called its Standard a Statement back in January 2006 and encouraged companies to use it accordingly – on a voluntary basis, you understand. (And breathe…)

Now I know I’m being a bit cheeky about it all here but, here’s the thing: the ASB’s voluntary Reporting Statement is actually the best and most detailed guide to UK narrative reporting that you’re going to find (apart from ours, of course). This latest cross-referencing exercise from the ASB is useful, too, as it makes it very clear what’s really needed in the enhanced business review. It clearly illustrates the link between the OFR reporting statement and the new legislative requirements.

Yes, sure, there’s a bit of ‘Look what the ASB told you nigh on two years ago and, well, really you should have taken notice back then cos it would have made life a whole lot easier’ in their exercise but, hey, what’s wrong with that? If you lurve narrative reporting, then I reckon you should go and take a look at the ASB’s new guidance.

Super summaries are go

A quick update on the e-comms landscape might be worthwhile in the wake of a couple of Financial Services Authority (FSA) moves in recent weeks.

First, a little reminder…the Companies Act 2006 allows companies to switch their corporate reporting default towards online communications (as long as they still provide printed materials on request). The power of the legislation lies in the fact that, after doing a bit of admin and then writing to shareholders, companies can assume that shareholders want to receive information electronically if they don’t hear back from them within 28 days. This will, in essence, leave companies who choose to go down the e-comms route with three broad categories of shareholders in terms of how they want to receive information:
- those that have proactively said they want to receive information in print;
- those that have proactively said that they want to receive information electronically and have provided an e-mail address for contact;
- those that the company deems to want information electronically because they haven’t heard anything back from them.

It’s this third category that are likely to be the biggest for most companies – but do you just straight away effectively cut them off from communication or do you let them down gently, so to speak?
Many companies with large shareholder bases have been planning to let them down gently. The law says that you have to write by post to those shareholders that you have ‘deemed’ to accept electronic shareholder communications, advising them when you have posted new information onto your website. Many companies have been planning to accompany this mailing with, what we’ve been terming a ‘super-summary’ – a four/eight/twelve-page summary of key messages from the year. Replete with, say, a bit of information about the annual meeting.

Indeed, this practice was initially encouraged by the then DTI when this aspect of the Companies Act was coming into effect last January. But in the last two months, the FSA has made one or two statements at conferences and seminars that have suggested that they might be thinking about entering the fray and regulating against ‘super-summary’ reports and the like.

Well, rest easy. It now seems that the FSA has looked into the issue and decided that, indeed, it does make communications sense to allow companies to include some simple messages with their notification mailings. The key is that the company simply has to stress that whatever is in the letter – or accompanies the letter – is not the full statutory information. It then has to refer shareholders to where the full statutory information can be accessed – in other words its website.

The FSA evidently tried to make this clear on page nine of its latest issue of List!, the regular regulatory read from the UK Listing Authority. Here’s the relevant text:
'So the issuer must include a warning in the notification which states that the letter is introducing the proposals contained in the circular which should be read before taking a decision, and that the notification is not a summary of the proposals and should not be regarded as a substitute for reading the circular.'
All clear then? Well, it wasn’t for me, so I gave the FSA a ring and a very nice chap explained that it was actually all fine. So there you have it: the FSA has taken us around the houses a bit but we are, basically, pretty much back to where we started.

Super-summaries are good; super-summaries make sense; super-summaries are allowed…until the next regulatory update, that is.

Two steps forward...

We’re building up to that all-important time when companies begin to gear up for the corporate reporting season. Of course, some being their timetables a lot earlier than others – the earliest we’ve seen this year was a request for information back in February for a December year end.

So what’s different this time around? Probably the key change this year in the UK is a general willingness to consider online corporate reporting in a more positive light than ‘we’ll just do a PDF’. The default to electronic shareholder communications in the Companies Act is evidently having some effect.
Not surprisingly, it’s the larger cap companies with big shareholder bases that are really putting time and resources into their online offers. There’s a general willingness to recognise that good online reporting cannot be a last minute effort after the printed report has been put together. It needs to be considered in tandem right from the start.

That said, a lot of companies slightly lower down the capitalisation scale still don’t really get it. There’s a recognition that they should do more online but that might mean going for, say, an image-based report rather than doing any pages in HTML. What’s wrong with that you may ask? Well, each to their own. (And, hey, in common with other agencies, we recognise that the transition to good online reporting will not be smooth and nor does everyone have the budgets of a mega cap).

My only advice would be to take into account whether all user groups – including search engines – can access this information easily. And then try and cut and paste some text from your report, in the same way that a journalist or prospective investor might try and note that information into another document. Can you do it? Annoying isn’t it?

There’s no point in moving forward…if you’re actually moving back.

Indicator overload

We’ve been polling analysts and fund managers again in a bid to find out their thoughts on the new periodic reporting regime under the Transparency Directive. In a nutshell…they don’t think much of it.

As part of the same project we’ve also been quizzing companies and have tacked on a question or two about the new Enhanced Business Review. What, we ask them to ponder, do they think they are going to find the most difficult about the new regime? Time and again they come back with the same answer: Non-financial Key Performance Indicators (KPIs).

Of course, not everyone has the same problem. Scottish and Southern Energy has once again gone a little bid overboard in identifying and reporting its KPIs. Last year, it managed to notch up 87 KEY performance indicators (see my earlier post). This year, it has racked up 121 (see its latest report). It beats most companies by, oooh, about 110 indicators.

Our own advice on this issue remains: keep them KEY. We generally advise 12 KPIs in total at group level - including financial and non-financial. By all means divulge additional indicators. But do at least give investors a bit of helpful guidance as to what the Board thinks constitute key indicators. That said, SSE does deserve applause for its attention to metrics. More disclosure is generally preferable to less, after all.

Valuable reporting

Annual reports can hold clues to the future. It’s official.

It seems that Professor Rajesh Chandy of the University of Minnesota has been busy studying letters to shareholders in annual reports from the online banking industry. You can take a look at his study here. He concludes that investors could predict the level of innovation likely to come from a firm simply by reading the CEO’s letter to shareholders.

Now, while I would not dispute that some letters to shareholders give very good insights into their companies, I would also suggest that the vast majority of them don’t help out much at all. As Professor Chandy himself notes: “One criticism of letters to shareholders is that they are the result of efforts aimed at impression management on the part of firms. Often, the argument goes, they are prepared with the active collaboration of public relations departments in firms.”

He disputes this with the quite mind-numbing: “If the motive is purely impression management, then firms would all either behave very similarly (in a manner designed to create the most positive impressions), or in a random or idiosyncratic manner that is unique to the public relations operations of the firms. Metrics of cognition derived from letters to shareholders will not predict actual firm actions in the future.”

I’ve long held the view that:
a) Studies like this are kind of tosh and nonsense. But I’m glad that it keeps people busy.
b) Anyone who really wants to do an academic study of annual reports would be well served to look at the link between good reporting and long-term value creation.

So what creates that link? Again, it’s hardly rocket science: companies that report well also tend to be well managed – and investors cotton on to that fact. Those companies also tend to have an investment audience that understands and buys into their story more readily. You don’t need an in-depth academic study to explain why. But if you want one, this report from the OECD might help. The December 2006 OECD report concludes: "Where firms disclose more about their assets and value drivers (i.e. how they make
assets productive and valuable) they are rewarded by improved market valuations."

As ever, it’s about good communication – unfortunately, that's the sort of thing that you won’t find much of in most academic research.

So, to finish up, here’s one more gem from Professor Chandy's study:
“It is important to note that external and internal foci represent independent attentional emphases in that one type of attentional focus does not necessarily determine the level of the other.”

Does wonders for my attentional focus.

Time running out

Just a quick reminder to AIM companies that they have until 20 August to comply with Rule 26 of the new AIM rules.

What on earth is that? I hear you cry.

My point entirely. Rule 26 requires AIM companies to disclose and keep up to date certain information on a website. This covers a variety of fun stuff, ranging from country of incorporation to current constitutional documents to names of directors. (Download PDF of rules from London Stock Exchange here)

Now I’m all for greater disclosure via the web. And most (most) of the Rule 26 requirements seem reasonable enough.

The thing that gets me is the accompanying guidance from the London Stock Exchange, I quote: ‘The information should be easily accessible from one part of the website and a statement should be included that the information is being disclosed for the purposes of rule 26.’

Nothing wrong with that you might think…apart from over the last few months it’s led to a bunch of AIM corporate websites that proudly announce ‘Rule 26’ as a key button. Not very intuitive is it?

I mean, if your average investor saw a ‘Rule 26’ button, would they really know what it meant? Of course, some might click on it out of intrigue. But most will just pass it by. I bet if you did basic user testing on any key stakeholder audience 99% would not have a clue what Rule 26 meant or why they should click on it.

My recommendation? If you feel duty bound to call it Rule 26 then at least put something else first. Something like ‘Key compliance information’ or ‘Core management and financial information’ might help.

Just a thought…this is, after all, supposed to be about communication.

US embraces IFRS...sort of

Amazing what can pass under the radar during holiday time.

Last week's news that the US Securities and Exchange Commission (SEC) is going to be consulting on whether or not US companies can file their accounts under either IFRS or US GAAP seems to have passed a lot of people by. And this on top of the SEC's proposal earlier in the month that non-US companies using IFRS would be able to file their accounts without having to reconcile to US GAAP.

(Bit of an acronym nightmare this post. For those not in the know, IFRS refers to International Financial Reporting Standards, used by many markets across the globe; US GAAP to United States Generally Accepted Accounting Principles, the US accounting standard).

Cast your mind back a few years and the idea that US companies would be able to use anything but the 'gold standard' of US accounting would have been complete anathema. Nor could you have imagined US regulators granting foreign companies full access to their market without struggling through various US accountancy hurdles.

So what's changed? Well, despite its undoubted problems, IFRS has now been accepted by many major markets across the globe. The EU's decision to mandate the use of IFRS from 2005 onwards was key in ratcheting up the acceptance levels. Meantime, the US's sometimes over-zealous regulatory approach in the wake of Enron - cue Sarbanes-Oxley - has led to foreign companies and, indeed, US companies, running scared from the US market. It is no longer always the number one choice in global capital markets.

Something had to give. The growing acceptance of non-US accounting standards is just the latest in a long line of moves designed to try and make the US markets more attractive once more. Greater flexibility on Sarbanes-Oxley; the increased ease with which non-US companies can delist and deregister from their US obligations; even yesterday's creation of the Financial Industry Regulatory Authority (Finra): they're all intended to help the US to slowly (very slowly) begin clawing back some of the ground it has lost to other markets in recent years.

Of course, it's too late to arrest the initial stampede. Making it easier to deregister from the SEC was always going to lead to an exodus of foreign companies but it should, over time, also make it more attractive for other non-US companies toying with the idea of the US market. The thinking here is that if it's easier to escape then more will be tempted to come in the first place.

News of large-cap companies delisting from the US continued to flow last week . And let's not forget that the SEC's thinking on IFRS is still just that at the moment. There's a whole lot of consulting to go through and plenty of work still to do on the US GAAP/IFRS convergence issue. That doesn't go away just because of these changes.

Still, these are positive signs for anyone who thinks that a truly global approach to accounting makes sense in our increasingly global world.

Clear as mud

I was contacted this week by a leading London financial PR agency who, like many others, have been trying to figure out the FSA’s less than clear thinking on the post-Transparency Directive regulatory regime.

They wanted to know the answer to the following: Do companies still have to put their full annual report out on a Regulatory Information Service (RIS) - eg RNS, PR Newswire, etc - if they have already put out a voluntary preliminary results statement and have no more price-sensitive information to give out?
(Yes, for those of you not in the know, the FSA also made prelims voluntary as part of the new rules introduced in January this year).

The agency pointed out that most of its clients want to continue with their prelims as before and then make the annual report available on their websites.

So, what’s the answer?

Here’s the FSA’s take on the issue: When sending out an annual report, companies only have to send out via an RIS the relevant information that would be required to be disseminated in a half-yearly financial report.

That’s clear then. Just to help you, here’s the rule in full…it’s in the Disclosure and Transparency (DTR) Rules 6.3.5 R(2)(b) – which in itself is a bit of a navigational nightmare:

“If information is of a type that would be required to be disseminated in a half-yearly financial report then information of such a type that is contained in an annual financial report must be communicated to the media in unedited full text.”

Easy peasy, isn’t it?

Okay, here’s our take on it following a conversation with the FSA earlier in the year but we would, as ever, suggest you consult your own counsel.

Companies voluntarily publishing a prelim (most companies are still doing this as to do otherwise goes against the sentiments of immediate disclosure) should then include that information (again!) when they send out a Regulatory News release on the annual report. They should also point readers to where the full annual report can be accessed on their website. You don't have to attach a full PDF of the annual report.

The rule is basically saying that you don’t have to send out the full annual report but you should send out in full text a condensed set of financial statements, an interim management report, plus an appropriate statement of assurance from the issuer. Oh yes, and an auditor’s report, too.

Anyone wanting further information on this should look at the UKLA’s List! Newsletter – Issue 14 (April 2007). This was originally published in December but, in true regulatory-styleeee, it was re-issued in April with some amendments. You may, or may not, want to cast your eye over the Listing and Disclosure and Transparency Rules, too.

Happy reading!

Transparency looms

The Walker Report on private equity was released today, encouraging larger companies held as part of a private equity portfolio towards greater disclosure and transparency.

This is good news (and not just for communications agencies eager to help them communicate with their stakeholders). It’s always struck me as a little bit strange that a large listed company should be required to publish all sorts of information according to strict regulation and deadlines but then, overnight, if its ownership changes its reporting obligations are immediately relaxed.

Now, of course, the key audience for annual reports remains shareholders – and rightly so. And when a company is tightly held by a private equity group following a takeover the former large group of shareholders disappears. But the other stakeholders still remain – customers, employees, local community, interest groups…trade unions. The idea that their interests suddenly become less important because the ownership structure has changed seems wrong.

Wrong it may be but will Walker's suggestion that large private equity porfolio companies report on a par with their listed company peers have any real teeth? Will the suggestion survive the consultation period (we all have until 9 October, 2007 to share our views)? Or will it be dismissed as too restrictive by the private equity industry?

Even if it is accepted, this will only become part of a voluntary code. Hmmmm…I suspect that the new Brown Government may be tempted to intervene not too far down the line.

Tough job, Bob

Now that’s a challenging job if ever there was one. Bob Pozen has accepted the role of chairing the SEC’s new advisory committee on ‘making the US financial reporting system more user-friendly for investors.’

Tough call. US financial reporting is notoriously complex and, unfortunately, often not that communicative. Rules and regulations may enhance overall levels of disclosure but the additional complexities that abound as a result can often make it more difficult for investors to wade through all the detail. US companies also tend towards a legalistic approach to reporting, making it even more difficult for audiences to access key information. The 10-K Wrap (this isn’t a popular music genre for those not in the know – it’s simply wrapping up a legalistic annual report with a bit of a communicative cover) is typical of this sort of approach.

Pozen, chairman of MFS Investment Management in Boston, has a fairly wide-ranging remit to improve the system and make recommendations to the Commission. He comments: “Our advisory committee will focus not only on offering better guidance to preparers of financial reports, but also on providing more user-friendly disclosures to meet the different needs of various types of investors.”

We wait with bated breath.

Ups and downs

Our latest analysis of narrative reporting in the FTSE 100 has given a good insight into latest reporting trends. What are our main findings this year? (Access full report here)

Well, for starters, there’s been a quantum leap forward in the quality of reporting generally among the UK’s top-tier companies. What’s caused this? Various reasons spring to mind (aside from this blog, obviously...) including the impact of the Business review legislation and the fact that last year companies really did seem to ‘get’ some of the ideas behind good narrative reporting. In other words, more and more companies are beginning to see that it is valuable to provide more meaningful explanation of the drivers behind their numbers.
Here’s a quick synopsis of what lifted our spirits or depressed us as we analysed the latest reports in the FTSE 100:

Cheering us up:
Tables outlining key risks, potential impacts and management actions
Bullet-pointed strategic objectives linked to performance measurement
KPIs graphically represented, showing five years’ data
Non-financial targets
Indexes

Getting us down:
Page after page of legalistic risk management information
Sections entitled ‘Our strategy’ that talk about anything but strategy
Failure to identify KPIs
Corporate responsibility and employees highlighted as being important upfront – but then not mentioned again until a couple of pages at the back
Mentioning risks with no indication as to how they’re managed

And the most depressing thing this year? The lack of originality or sparkle in design. Those that did it well really stood out. Few and far between though, unfortunately.

Linked in

I’ve been having chats with various people over the past month about how to improve their online reporting. Many companies recognise that the new ‘default’ to electronic shareholder communications isn’t just about cost-savings for the company. It also comes with the ‘price’ of having to make your online IR a little bit more communicative.

Of course, some companies have been seizing this opportunity for a number of years. Others are finding it hard to play catch-up now that they want to play the online default card.

One of the issues that is causing scratching of heads is the idea that the online version of an annual report has to be the same as the printed version. Makes sense – certainly, people who request the printed copy shouldn’t be disadvantaged by that decision.

But…and it’s one of those big BUTS again…the web is ideally suited to linking off to other information. If you’re talking about corporate responsibility in your report, doesn’t it make sense to link to your corporate responsibility section in a related links field? Of course it does.

Trouble is, this is also linked to that need/desire to ringfence the audited information in an annual report away from the rest of the IR/corporate site. Company secretaries, lawyers and other disciplines are keen that this audited ‘snapshot’ of the company at a certain point in time doesn’t get confused with other information on the site. (That’s just one reason why online annuals often have their own microsite.)

So what’s the solution? Well, for starters, there is inevitably going to be a few years of transition here as less online-savvy people get to grips with the new environment. But in my mind there’s little difference between referring to a link to further information in a printed annual report and actually providing that link to the information in the online environment.

Just give it a few years. It might mean that some companies take the click-through ‘disclaimer’ route along the way but my guess would be that those die out over a period of time. Just as they have in other areas. It’s a new reporting environment for many companies. And it will take a bit of time for them to adjust.

Sing the same song

I do find it strange. Many companies produce great, communicative, informative analyst presentation slides. Key messages are pulled out. Heck, there’s even some information on the markets in which they operate.

They then even go to the trouble of making that information publicly available via their websites (ok, so you have to drill down into a PowerPoint slide or a PDF a bit but it’s still up there, still available).

Then you look at their annual reports and they could be a completely different company. All the clear messaging goes out of the window. All of the really interesting stuff that, remember, they’ve already made publicly available on their websites, gets forgotten about. It’s almost a different story entirely.

Why the double standard? Why tell a different story? The only explanation I’ve ever received from one of these companies is that the annual report is done in a certain way and…analyst presentations are done in a certain way. And never the twain shall meet. Annual report processes, in particular, tend to build up over a period of time and companies get set into certain styles, certain ways of thinking.

I can understand the argument that there should be different strokes for different folks. That’s fine. Diverse audiences sometimes require diverse approaches – as long as there isn’t a danger of selective disclosure.
But that shouldn’t mean changing the whole story. That shouldn’t mean losing the key messages just because there are various regulatory boxes to tick in the annual report. Or because you have always done it that way.

My advice? Put all of your last year’s investor communications on a table, or bring them up on screens together and then look to see whether they all sing from the same hymn sheet. Many companies – particularly those in the higher echelons of the FTSE 100 – do it very well. Some do it atrociously. And it’s not just small companies in the latter group. Quite a few of the FTSE 100 are guilty, too.

Picture this

We’ve been having lots of fun analysing and reviewing the latest batch of annual reports from the UK’s largest companies (results out soon…Hurrah! I hear you cry).

Many of these reports have really moved on in terms of content this year. Some of them are actually linking their strategy to KPIs or talking about risk management in a cogent, sensible fashion. They should be applauded.

But one thing doesn’t change. The number of all male, white boards of directors remains truly shocking. The idea that even one fully male, white board should still exist in this day and age at a large quoted company is unbelievable but there are still quite a few. They should be ashamed.

Add in the number of boards with just one female or ethnic minority representative and it becomes even more worrying.

It makes me wonder how a large cap company can possibly take advantage of all the opportunities out there if its leadership comes from such a narrow group? If I were an institutional investor it would begin to ring a few alarm bells. That said, if you randomly picked 20 average fund managers then maybe the picture would not be that different...doesn't make it any better, though.

Don those hard hats

Early reports from the front on electronic shareholder communications…It seems that some of the early adopters – i.e. those who were quick off the mark in terms of getting it onto their agendas at annual meetings – have faced an inordinate amount of flak from irate private shareholders. You have been warned.

This tallies with our much earlier warnings about the need to manage this change from a communications point of view, rather than just seeing it as a cost-saving measure or simple regulatory change. Unfortunate as it is, many of those private shareholders out there have feelings…and they tend to vent them most loudly during times of change.

Now many companies might well see those private shareholders as ‘pesky’ individuals in relation to the might of institutional shareholders but, once clubbed together, they can form a formidable foe. Just think how nasty a swing of 10% or 20% against management might be in a takeover situation.

There is an upside to all this, of course. It does mean that there is less time and energy left for retail shareholders to focus on executive remuneration this year. You win some; you lose some, as they say.

Worrying thoughts

Those dastardly fund managers and analysts are beginning to worry me…they’ve even started looking at company websites for information.

A colleague of mine has been busying herself of late (thanks, Rosie!) interviewing some 51 members of the investment community to see whether they were actually using these sites and, if so, what they wanted to see on them.

Well, they’re certainly using them. But they’re not always getting what they want. Top of their list of complaints was the lack of decent historical information. They are turning to IR websites as a quick reference source and…guess what?…a whole lot of corporate sites are letting them down: where is the dividend history, for example? And what about a list of recent acquisitions – together with some relevant links? You could even make presentations easy-to-access with some form of filtering or search facility rather than just dumping them down on a site in chronological order.

Nor could investors or analysts give two hoots whether information on a corporate IR site is clearly marked as audited or not. Some 77% of the sample said that they would never check. They simply assume that all information on an IR site is robust.

Finally…they also complained that too many of these sites are full of unnecessary bells and whistles. Seems like they’ve spotted that some companies are being sold down the river in terms of what they need/what they should have on their sites. My advice? Have a real hard think about what your audience wants and then begin to structure your IR website. Having scooted my way through far too many of these sites over the last ten years or so it is truly worrying how many look the same. Blank off the logo and, in many cases, you’d never know the difference.

It’s a bit sad and a bit worrying. Either that…or I’m a bit sad and worry too much. Never mind…it’s Easter.

Turning the key (or…What’s in a name? – part 2)

Cast your mind back once again to that ICSA seminar on narrative reporting earlier this month that I banged on about last time round. You weren’t there? Me neither, really, but I’m reliably informed that Peter Montagnon, director of investment affairs at the ABI, raised the thorny issue of what information investors actually want. Always a tricky little number for investor relations officers and their ilk.

Montagnon listed a number of things including the usual suspects of forward-looking information, better segmental reporting and…drum roll, please…non-financial KPIs.

Providing a few more of them would be a step in the right direction for most companies but, as Montagnon notes, what they want most of all is information that is relevant. They don’t want to trawl through all of a company’s environmental data or look at other areas that have limited bearing on long-term performance. They want, to coin a relevant phrase, what is key to the business.

Speaking at one of RY’s seminars yesterday, Isobel Sharp from Deloitte, also touched upon the KPI issue. She pointed out that when she was a member of the Accounting Standards Board developing the original Operating and Financial Review Guidance, they were thinking that companies might focus on, say, ten or so KPIs. PricewaterhouseCoopers makes a similar point in its guide to KPIs – they suggest between four and ten.

The trouble is some companies that are actually keen reporters have gone a bit mad and ended up putting together 20, 30, or even more KPIs. Not so good in terms of what is actually key. We actually found one company – Scottish and Southern Energy– that highlighted 87 KPIs last year. We called it 'KPI overload' at the time.

Oh dear…companies can’t win, can they? In trouble if they don’t provide KPIs; in trouble if they provide too many. It is, of course, all about balance. Focus on what’s key for investors, with a good mix of financial and non-financial metrics and you’re going to be most of the way there. By all means support that information with additional metrics if you feel it’s valuable but do try and tell your audiences what you as a company judge to be key. It is, as I think I said last time around, all in the name.

What's in a name?

Last reporting season there was all sorts of fun, games and general confusion about what to call narrative reporting sections. Should it be an OFR? But, wait, that’s been abolished. A Business Review? Er, isn’t that a lower-value option? We want to be best practice.

This year, there is similar fun and games over naming these sections – but for slightly different reasons. Now many companies have become focused on the Business Review but the need for it to be in the directors’ report – or cross-referenced from it – has caused the confusion. Add to this the fact that the new directors’ liability clauses in the Companies Act 2006 only apply to the Directors’ Report and Directors’ Remuneration Reports (and summary financial statements covering that information) and you have added pressure on how the various sections are structured and named.

There are three basic viewpoints currently doing the rounds. I believe there is some truth in all of them – but it really is horses for courses here, each company has to decide what is best for them:

View 1: The Business Review should be a section in its own right up front and should be cross-referenced from the directors’ report. This, it is argued, allows companies to be a bit more communicative, away from the legal-beagles that crawl all over the directors’ report.

View 2: The Business Review should be in the directors’ report. It can be fairly short, sharp and to the point. This, it is claimed, is what investors want and the fact that it’s in the traditional directors’ report will really make no difference to communication.

View 3: You should call the whole of the front of your book ‘The Directors’ Report’. That way you don’t have to cross-reference and the Business Review, after all, is supposed to be part of the Directors’ Report.

This latter view was raised by Derek Woodward, head of secretariat at Centrica plc at the ICSA seminar on narrative reporting this week. Centrica has taken the decision to label the front of its book Directors’ Report. It then has various sub-heads along the lines that you normally might in a narrative section: Business overview, KPIs, operating review and the like. This way, argue Centrica and several other large companies, everything remains the same but it cuts out the need for duplication and cross-referencing.

My view? I think it’s a solution…BUT (and it’s a big BUT) this is fine for large-cap companies that are confident in their ability to communicate. They can – and doubtless will – actually make the directors’ report a good read.

The danger of this route for smaller cap companies that don’t necessarily see the need to communicate is that they make the whole of the front of their book very legalistic and boilerplate. If that’s the case then I would recommend a cross-reference from the business review.

Of course, at the end of the day, it is just a name for a section – what’s in a name shouldn’t really be the concern. What’s actually in it should be what matters.

Crystal ball gazing

All investors want it – few companies want to provide it. Forward-looking information is one of those tricky little numbers where the investor relations community seems constantly out of step with the demands of its audience.

It’s hardly surprising. Few directors want to put their necks on the block with predictions or guidance that turn out to be unfounded. Why give an indication of what you might be doing in 2010 when chances are a zillion other factors might pull you off course? Those pesky investors – who wanted the information in the first place – might even sue you for providing inaccurate information.

So how do you peer into the future without putting your necks on the block? Some companies do it very well. Of course, some of them have an innate advantage over others in this regard – the real estate sector, with long-term lets and the like, have it relatively easy in comparison to, say, your average retail group.

That said, there are ways and means. Certainly, using a wider discussion of your own industry and markeplace is a great way of introducing this sort of information. Use stats from external sources. Bring in some views on the challenges and opportunities that your directors see within the sector.

This isn’t putting your neck on the line – it’s a general discussion of the issues facing your company and sector. But it is useful stuff and relatively few companies do it very well. Some, it’s sad to say, give scant information on their marketplace within their reporting. They almost assume that you know the sector inside out. Readers may have some insights but what they really want to know is what the real experts – your directors – think.

What it also does is allow you to set your strategy into context. We are doing this because we see these challenges and opportunities in the months/years ahead. Valuable insights that make your corporate reporting much more of an integrated whole. And give some handy peeks into what the future might hold, too.

That’s the sort of crystal ball gazing that any company can do, regardless of sector.

Resistance is futile

Today sees the release of the ICSA’s new guidance on electronic shareholder communications. Being a member of the working group that put it together I feel it only right to give it a plug - you can take a look at the media release and download the guidelines via the link at the bottom of this post.

Electronic shareholder communications is challenging for many professionals that have long been used to the certainties and boundaries of the printed reporting environment.

The inclination of most company secretaries, lawyers, auditors and the like is to take the printed documentation and upload it into the online world. It’s all about trying to impose that ‘confined in one document’ environment into the hyperlinked, interactive world of the web.

But the power of the new Companies Act is that companies can meet their statutory reporting obligations online. That moves the goalposts.

As I’ve mentioned before, going forward I expect companies to begin to define more of their reporting information in an online environment and then reverse that back into the printed world. That means they may well begin to question whether they should be replicating a lot of the investor relations information that is already permanently on their site into their online annual report. Strategy? Yep, that’s covered already. Corporate responsibility? Hey, we’ve already got a section on that.

The problem is that the Companies Act requires companies to produce a clearly defined, historic reporting record that investors can read and retain. With many companies moving away from solely providing a PDF due to accessibility issues that kind of implies a separately defined area, doesn’t it?

Well, yes, it might but that’s where the power of the web lies. Just because the visitor sees a separate area that gives a snapshot of reporting at a certain point in time does not mean that all that content has to be diligently recreated just for reporting purposes. It’s perfectly possible to simply pull relevant information from around the site at a certain point in time using a decent tagging system. That gives you the flexibility to revise and update your content as needed then grab it at your reporting deadline ready for the auditors, etc to do their job. It then remains locked as that snapshot in time while you continue to update the information in the rest of the site.

Most companies are unfortunately nowhere near this sort of approach – yet. But some are already beginning to experiment and adapt to the new environment. It’s the sort of communications stuff that makes some auditors and company secretaries lose sleep at night. There will undoubtedly be resistance from some quarters but it will, I expect, only be a transitional thing. Living online by printed rules is not sustainable in the longer term.

Download a copy of the ICSA's new guidance notes on electronic shareholder communications

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Negatives into positives

Get this from the Turnbull Review Group back in October 2005:

“Boards should review whether they can make more of the communication opportunity of the internal control statement in the annual report. Investors consider the board’s attitude towards risk management and internal control to be an important factor when making investment decisions.”

Too right. Unfortunately, few companies look at risk management information as a communications opportunity. Most find it nigh on terrifying to even admit that they have any risks, let alone talk about them openly. While the Turnbull Guidance and subsequent review have done much to bring more risk management content into annual reports, they have done little to make it meaningful.

Read through a lot of the risk management information in corporate reporting and chances are you will be none the wiser about the real issues that face the group in question. In nine out of ten reports you will be faced with bland, boilerplate-type, legalese that could be cut and pasted from any other annual report you care to pick up.

What are the principal risks and uncertainties that face your company? That’s what was called for in the OFR Reporting Statement. And there’s a good reason for that. Narrative reporting should help investors see the wood from the trees. It should help guide investors through the company’s affairs in the eyes of your board of directors.

There is little point in simply listing generic risks – that’s not reporting, that’s just listing. The true value in risk management reporting lies in saying what the principal risks are for your group, how they might potentially impact your strategy going forward, and – this is the main point – what your company is actually doing about managing them.

Do this and you are beginning to turn a negative (the risk) into a positive (the mitigation programme). You might even consider talking about it in the front of a report, instead of hiding it all away in legalese at the back of your governance statement.

That’s not risky business. It's good business.

Another challenging year

Crikey. Imagine if your Business Review was a really good read? What if it was actually a page turner?

I know this sounds unlikely given the current state of annual reporting but there really is nothing to stop companies making their narrative reporting interesting. Some companies do it already. They tell a story. They talk about the future. They tell you about the opportunities for, and threats to, their business. They talk intelligently about the markets in which they operate.

Despite widespread scepticism, the existing Business Review legislation and (now voluntary) OFR reporting statement do actually have some requirements that would make narrative reports more interesting to investors and other stakeholders. The trouble is it’s all wrapped up in lots of boring legalistic text. It doesn’t exactly make sane people want to read the regulations.

Dare I suggest that maybe there’s some similarities with how investors feel when your latest annual report lands on their desks? If you cannot bear the thought of trawling through the Business Review legislation or reading the 70 or so pages of the OFR reporting statement then, don’t worry, you are not alone. But don’t complain if no-one wants to read your annual report, either.

Some of last year’s documents beggar belief. Just try and find key messages in a 200-page 20F-type report. If I had a choice, I wouldn’t.

Investors have a choice. They can choose between investing in companies that know how to tell their story and others that don’t. The reporting regulations and legislation are there to set boundaries; to make sure that companies provide a minimum level of information.

The challenge for companies is to ensure that you meet the regulations but still manage to communicate. A simple rule might be to forget about ticking regulatory boxes – think in the first instance about telling your story to investors. What do you do? Why do you do it? What are you planning to do? How does it all fit together? Chances are those all-important regulatory boxes will still be ticked and you’ll have more of a page turner, too.

(Er, this bit’s for the lawyers…and then go back and check that you’ve ticked the regulatory boxes).

Good things come early...

A quick update from the FSA which, this past weekend, has just implemented the new Transparency Directive reporting regime.

One consequence of the regime is that the FSA has done away with the previous requirement for companies to either send out interim reports (now known as half-yearly reports) to all shareholders or to place an advertisement in a national newspaper. Many companies have seen this as an opportunity to cut costs – without  always, it has to be said, considering the communications impacts of such a decision.

However, the FSA had not previously made it clear whether or not all companies could immediately take advantage of this new regulation. Its wider ruling has been that companies with financial years starting after 20 January 2007 would have to apply the new regime, whereas those with, say, December 2006 year ends would not have to until January 2008. The trouble is, the interims decision is slightly separate to the rest of the new reporting regime – yet companies might see it as advantageous to adopt it early.

Well, it turns out they can’t. We have been trying to clarify the situation and the FSA told us last Friday that it believes that all aspects of the new regime should apply to all companies depending on the date of their financial years. So…for example, a December 2006 year end will still have to send out or advertise its half-yearly report in 2007, whereas a March 2007 year-end will not have to do so.

Sometimes it seems the good things come earlier to those who wait. Of course, as we hinted above – none of this changes the communications drivers behind reporting. If you made the decision to send out interims in the past rather than advertise then, hey, that communication need will probably still exist.

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Doing your articles

There seems to be ongoing confusion from companies in general about whether or not they have to change their articles in order to take advantage of the new electronic shareholder communications provisions set to come into effect tomorrow.

Thought it might be worth clarifying things as we currently understand it – but, hey, you still have to check with your legal counsel, ok? We’ve unfortunately heard/seen/read lots of different interpretations from lots of different (and leading) lawyers. So….disclaimers abound on our part. This is for information only.

In essence, we currently understand that:

-         If you want to carry on doing what you’ve done to date then no change is needed.

-         If you want to take full advantage of the new default to web-based communications, i.e. take advantage of the ‘deemed’ consent by shareholders then you are more than likely to have to change your articles.

-         You might, in theory, legally be able to ask shareholders whether or not they want to receive documentation electronically before you’ve actually passed a resolution – i.e. you could ask the question at the same time as sending out the documentation.

This last point is tricky legal ground. Some lawyers argue that you can’t do that because you don’t have the legal authority in place to do it - yet. Others maintain you are simply asking a question and have been legally able to communicate electronically for seven years or so.

My thoughts? The environment has changed due to the switch in the default. It's a bit cheeky asking a shareholder whether they want to receive information electronically as a default position when you're also asking them to vote on whether or not the company can actually go ahead and do it. There's a few communication and reputational issues to consider here, too.

Do's and Don'ts for 2007

Okay, okay. So I had a couple of weeks off for Christmas and New Year. In truth, I spent my ‘holiday’ trawling through websites and annual reports coming up with my Corporate Reporting wishlist for 2007. The kids just love it.

Here goes…

Do:

• Make your corporate reporting seamless – from website to annual report to investor presentations. Tell the same story. It might even make life easier.
• Include some straightforward contact details on your IR website. Don’t force people down the ‘forms’ route. Sometimes you plain just don’t want to fill them in.
• Split PDFs into manageable sections. That’s it. Easy-peasy.
• Tell people what you do. In print and online. Don’t assume we know.
• Make an investment case. You’re not ramping your stock if you tell people why you think you are a good investment proposition. It’s just common sense – hopefully, the message is too.

Don’t:

• Talk about your company in one way in your narrative reporting and another way in the financials. Confusing. Bad.
• Assume readers know what you want us to know. We don’t – pull out key messages; stress the points you want us to focus on.
• Think that reams of legalistic, uninterrupted text is a good read. Even investors are  human.
  Make people scroll down 40 pages to get to the information they want on your site.
• Focus on simply ticking those regulatory boxes. Come on…communicate.

Just some thoughts for the new year. We might all like talking about best practice but, believe me, there’s still some very bad practice out there – even among larger companies. Lots of fun for the year ahead.

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Seasonal greetings…FSA-style

The Financial Services Authority released its long-awaited ‘guidance’ on the content of the new Interim Management Statements (IMS) today. However, anyone expecting a detailed list of what they should or should not include will be sorely disappointed by the FSA’s seasonal message. It’s quite clear that the FSA doesn’t really do Christmas. IMS will be introduced in the UK from 20 January, 2007 as a result of the EU’s Transparency Directive.

They are, in effect, a form of mandated quarterly updates to the markets – quarterly trading statements, if you like.

The FSA has been keen all along to stress that these are not full, quarterly reports – although anyone already issuing full quarterlies will (likely) be covered. I introduce ‘likely’ here to mirror the FSA’s cautious approach to guidance. It originally said it wouldn’t be providing any guidance at all. Then, after a bit of pressure from companies, it revealed that it would provide a list of what IMS ‘need not include’.

In other words, a ‘don’t do this’ rather than a ‘do this’ tack. Today’s ‘guidance’ is stamped throughout with the warning: ‘This is not FSA guidance’. It goes on: ‘Readers should note that our intention is to provide an informal indication of what we would not necessarily expect issuers to disclose in IMS.’

Any clearer? Good, then we’ll begin…In essence, the FSA is reiterating its view that companies do not need to move towards full quarterly reports. It believes that anyone producing performance reports, trading statements and other similar reporting formats are likely to meet the criteria required.

The key here is that IMS must ‘explain the material events and transactions that have taken place during the relevant period, their impact on the financial position of the issuer, and a general description of the financial position of the issuer.’ All good fun. Anyone wanting more ‘guidance’ should point their browser towards the FSA’s December issue of List!

http://www.fsa.gov.uk/pubs/ukla/list_dec06.pdf

Deadlines, deadlines...

The Government’s decision to fast-track the electronic shareholder communications provisions of the Companies Act to January 2007 has caused all sorts of fun, games and confusion. The DTI appears to be struggling to get its act (or should I say, Act???) in order in time for the tight deadline.

Evidently, the fast-track decision was taken on the basis that companies would benefit from having next year’s annual meeting season in which to implement any additional shareholder resolutions – then they can take full advantage of the provisions in 2008 and default to web-based communication. The downside, of course, is that there might be a bit of confusion in the interim period.

Just to clarify things as much as we can in the current situation…it looks like:

• Companies that have already passed resolutions to enable them to communicate electronically with shareholders under the old (Electronic Communications Order 2000) legislation will still have to pass an additional resolution(s) to take full advantage of the new legislation. In other words, in order to be able to default to web-based communication rather than use direct e-mail based communication.
• The electronic shareholder provisions will come into effect on 20 January 2007 – at the same time as the implementation of the EU’s Transparency Directive.
• The DTI is promising some (minimal) guidance on these issues between now and then.

Don’t expect this DTI guidance to be very fulsome, however. The DTI has repeated its previous view that it is not its job to re-interpret the legislation. Despite rarely siding with the DTI, you can sort of see its point. If a Government department releases guidance to help interpret legislation, then everyone just ends up defaulting to that guidance rather than the legislation itself. In this instance, it would kind of make all the to-ing and fro-ing over the Companies Act over the past nine years rather redundant.

Still, it wouldn’t half make life easier…

Offline to online...and back again

The next two to three years promise an era of great change in corporate reporting. A major goal of the new Companies Act is to bring company law into the modern age and allow companies to communicate more flexibly with their shareholders.

Indeed, the electronic shareholder communications provisions in the Act will end the obligation to send out printed communications to all shareholders. You’ll still have to provide hard copy to those who request the printed page. And you will still have to write to them to shareholders tell them it’s available online. But the potential for cutting distribution of large, printed documents – saving trees in the process – is significant.

What does this mean for corporate reporting? One change is likely to be a switch of focus. The new legislation will, effectively, mean that the statutory document will reside on your investor relations website. This raises all sorts of questions for auditors and they’ll doubtless be having much fun grappling with how to signpost audited and unaudited information over the coming years.

But it also raises new challenges from a communications viewpoint. Companies have, to date, tended to focus on producing a printed annual report and then worked out ways to put that online. At the basic level that means opting for a PDF; more advanced players experiment with HTML, video messages, etc.

In the future, it may well be that companies start with the online concepts and then work out how they will convert that material into printed form. It does mean that companies will have a lot more freedom in terms of how they communicate key messages to shareholders. They might, for instance, concentrate the bulk of their efforts on the web and just produce a four-page summary to send out to shareholders. This could also mean that companies begin to question the structure and content of their corporate reporting instead of simply ticking the regulatory boxes in line with their peers. You never know…

Duty calls

It’s billed as the largest ever piece of UK legislation. At around 1,300 clauses, the Companies Bill finally received Royal Assent yesterday. Of course, that doesn’t mean it all comes into effect straight away. It merely begins the slow, lumbering process of implementation – currently scheduled to take up until October 2008.

What does the new Companies Act mean for corporate reporting? There’s a whole range of things to keep in mind from the enhanced Business Review to directors’ liability and electronic shareholder communications.

There’s also the ‘codification of directors’ duties’ – probably one of the most contentious parts of the Act. This puts directors’ duties onto the statute book and will require them to have regard to a range of factors, including the environment and employees. It will have an indirect link to reporting in the sense that companies should publicly state how they are fulfilling these duties, as required within the Business Review.

Most directors will, of course, already pay due regard to all of the required issues in any case but, by setting the duties out in legislation, it takes them onto a higher plane. Will it, as predicted, lead to countless lawsuits against companies from various interest groups? My gut feeling is probably not. Lawyers and other interested parties have kicked up a bit of a fuss but the idea that every pressure group in the land will launch a case against directors for failing to pay due regard to, say, the community seems unlikely.

Still, it does mean that those charged with corporate reporting will have yet another box to tick. On a positive note, though, any company worth its salt will already be reporting on all of these issues and more. They should be an integrated part of your story rather than an additional add-on forced upon companies by the new legislation.

Electronic news

Most companies will welcome yesterday’s news that the Government is to fast-track the electronic shareholder communications aspects of the Companies Bill.

The provisions, which allow companies greater freedom to communicate with shareholders using e-mail and the web, will now come into effect from January 2007. Given that the Government also announced that much of the Bill will not come into effect until October 2008, the e-comms fast-track is a significant concession.

Of course, the big problem now is that companies will only have two months in order to get their heads around what this all means. Perhaps, even more of a challenge will be the fact that the DTI needs to make decisions on the wider implementation timetable before companies can begin to understand how this will fit into their own schedule. For example, to date, the DTI has been less than clear as to whether companies that have already passed e-comms resolutions under the existing legislation will have to pass new administrative resolutions in order to take advantage of all of the new legislation in the Companies Bill.

My thinking? Despite the squeezed timetable, the fast-track announcement is a very good thing. It will give companies a chance to pass any necessary resolutions at next year’s annual meetings, allowing them to take advantage of the electronic shareholder communications provisions for reports published in 2008. Speeding up administration is no bad thing. The key challenge now is ensuring that companies begin to communicate the changes to their shareholders.

What's the point?

What’s the point of good corporate reporting? It’s a question I often get asked – unfortunately, most regularly by firms keen on just doing the absolute minimum to comply with the regulations.

The simple and most obvious answer is: communication. Surprisingly, many companies become so wrapped up in ticking the regulatory boxes that they fail to take a step back and ask what they’re actually trying to communicate.

First and foremost good quality communication means using good structure, messaging and navigation. It’s hardly rocket science.

Take that message to heart and you’re halfway there. Other answers might include:

• Quality of management – time and time again investors cite quality of management as a key   determinant in making investment decisions. It depends on a wide range of factors but, certainly, high quality corporate reporting is a good signal that something is being managed correctly.

• Better understanding of the business – you’re far more likely to gain a fair value for your business in the market if you inform investors and manage their expectations. Corporate reporting programmes, online and offline, have a major part to play in that evaluation.

• Discipline – if people can get away with being a bit slack then many of them will do so. If, however, they could be publicly named and shamed then they will think twice about it. It changes attitudes. Again, this comes back to a quality of management issue. Good reporting regimes reinforce good management.

• Presence and profile – a high quality annual report can mean you stand head and shoulders above your competitors who, heaven forbid, just slam a load of information together into a Word document. And corporate websites will often be the first port of call for customers, suppliers, advisors, future employees and others.

Finally, if it’s worth doing, then it’s worth doing well. Companies spend an awful lot of time and money on meeting corporate reporting requirements. You might as well ensure that your report or website actually does something to enhance the perception of the company rather than detract from it.

A regulatory mix up

The Financial Services Authority is set to announce its thinking on how it will implement the EU’s Transparency Directive before the end of October. Given that these regulations – covering a host of things from periodic reporting to dissemination of regulated information – have to come into effect before the end of January next year, it cannot come a moment too soon.

Aside from the agonisingly slow aspect of the regulatory process, the FSA has contradicted itself with its thinking along the way. One part of the consultation recognised that the Transparency Directive will ‘squeeze’ the annual reporting calendar from the existing six months following year-end down to four months. It will, of course, be no great shakes for most publicly-listed companies, which easily beat that deadline for publication of their report.

But the FSA also consulted on whether or not it should make preliminary statements of annual results voluntary instead of mandatory. Its thinking? Preliminary results currently have to be published within 120 days – i.e. four months – of the issuer’s accounting year-end. Given the squeeze in annual report publication to the same time period, the FSA thinks it might as well do away with the need for prelims.

Hang on a minute though…isn’t there also an FSA rule that requires the dissemination of inside – i.e. price-sensitive – information as soon as possible? And that certainly also applies to preliminary announcements of results.

The FSA’s idea that it might be able to do away with mandatory prelims means that a board could quite feasibly sign off its results and then wait two, three, four weeks or more before publishing the results in its newly printed annual report. The chances of the board keeping all of this price-sensitive information under wraps during this time are unlikely, to say the least. This, quite plainly, goes against one of the major tenets of releasing material information as soon as possible to the market. There has been feedback of this nature to the FSA from various interested parties so we can only hope that it takes notice before announcing its final thinking.

Companies might also like to take notice of the FSA’s implementation plans, as they will have a significant impact on corporate reporting over the coming year. Fixed your financial calendar for 2007 already? Made sure all the directors have board meeting dates in their diaries? Look out for the FSA’s announcement come the end of October as there could well be revisions needed.

XBRL the way forward?

The Chairman of the Securities and Exchange Commission (SEC) in the US has reaffirmed his commitment to ‘interactive’ data for financial reporting.

Christopher Cox told delegates at the National Investor Relations Institute annual conference in San Diego in mid-June that ‘electronically tagged’ financial information is set to transform the way that investors receive financial information.

Cox pointed to the benefits of XBRL – eXtensible Business Reporting Language – as a means of electronically identifying each number that is reported. The tagged data can then be downloaded into spreadsheets and is instantly searchable. XBRL also gets around the problem of continually having to re-key data, which can lead to human error creeping into the reporting process.

XBRL has been around for several years now but the SEC’s newfound commitment to the technology has given it a new lift. The SEC has set up a voluntary filing programme for companies wishing to tag their data using XBRL.

The enthusiasm for XBRL tagged data is slowly moving across to Europe, too. The UK’s Companies House has announced that it will make XBRL filing of company accounts mandatory by 2010.

What does this all mean for UK companies? Not a lot – yet. The vision of ‘seamless’ electronic reporting from keying in the data to investors searching it on their screens remains a long-way off. Certainly, the SEC’s moves have given XBRL a push in the right direction but whether it will be the future of reporting remains up in the air.

Still, as Chairman Cox told NIRI delegates: ‘I’m sure you can imagine how the combination of interactive data and internet delivery mechanisms like RSS can fuel instant updates of research analysis models.’

It certainly has the potential to be a powerful force but it will only truly take off once investors embrace the technology. That could still be a while off yet.

Safe harbour for the future

Talking about the future has never been a corporate strong point. Let’s face it, few people want to make firm predictions about life in the months or years ahead. Add in the threat of a potential lawsuit by disgruntled shareholders and you’ve got a recipe for corporate silence.

Trouble is, investors want every grain of information about likely future performance that they can lay their hands on. There is, after all, little point in solely telling investors about the past – they’ve already reckoned that into their models. What they really want to know is what things might impact performance a year or two down the line.

That’s why the Government’s original proposals for the mandatory Operating & Financial Review were so keen on a forward-looking orientation. That’s also why companies were so up in arms just before the legislation came into effect. Radley Yeldar routinely finds in its own surveys of corporate reporting that providing high quality forward-looking information is one of the greatest challenges for most companies.

But just because Gordon Brown has effectively kicked the mandatory OFR into touch does not mean that investors’ desire for forward-looking information has gone away.

Thankfully, the Chancellor’s hastily announced decision did afford the Government the chance to look at the issue of forward-looking information once more. And this time round they seem to have got something right. In early May, the DTI announced some draft proposals designed to protect investors from lawsuits when talking about the future.

Once these proposals are put into legislation – most likely as part of the Company Law Reform Bill in early 2007 – they should protect directors from legal action when making predictions about the future. That is, as long as the directors are not acting recklessly or in bad faith.

Provided there are no major hiccups, the new legislation should be in effect from 2008 onwards. That all depends, though, on the whims of the Government and the Parliamentary timetable.

Even then, it could be far from plain sailing. Lawyers are already pointing out that the proposals as they stand would only apply to disclosures in the Directors’ report. That means that any company providing a voluntary OFR and cross-referencing from the Business Review in their Directors’ Report would currently not be covered. If the Government is really trying to encourage forward-looking information then it seems that it has some way to go.

The future, as they say, looks bright. But don’t quote us on that – yet.