Investor Communications with Richard Carpenter

Super summaries just keep on coming back...

We held a seminar yesterday morning on online reporting and that old ‘super-summary’ question raised its ugly head again (see earlier postings). In the afternoon I was chatting to someone at the ICSA and they mentioned that members were also having problems with the notion of super-summaries.

Companies want to produce them. Shareholders want them. Yet there remains a real nervousness about what the regulators and lawyers think about them.

To help ease that process I’m pasting below a response I received recently from the UK Listing Authority to my ongoing questions about whether or not they are allowed. Here goes…and I have this in writing from the UKLA:

Richard
Thank you for your email. Whilst in principal we are not opposed to "super summary" reports, we do have the following comments:
- Any documents provided to shareholders in addition to those required by the Listing Rules, Disclosure and Transparency Rules and Prospectus Rules do not absolve an issuer from any of their obligations under those rules
- Such additional documents should not contain any inside information (as inside information that was selectively disclosed would need to be simultaneously disclosed to the market in accordance with DTR 2.5.6R)
- An issuer should ensure all documents it sends to shareholders are consistent with LR 7.2.1R, Principle 4 - the need to communicate information in a way as to avoid the creation or continuation of a false market in its shares
- As per LIST! issue no. 17, the notification that a document will be made available on a website must state that the circular 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. Also, the only action the notification should recommend is that shareholders should read the circular, and there should be no statements of benefits or references to the word 'recommendation' in the letter.

So there you have it. Once again, it’s not exceptionally clear but it is a step forward. The UKLA says ‘we are not opposed to ‘super summary’ reports.’

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.