ICSA Governance Conference 2020: Investor panel – In truth we trust

By Tamara O’Brien, TMIL’s roving reporter

The announcement two days ago that a viable vaccine for Covid-19 has been developed has had an oddly sobering effect on me. I thought that when this day came, there’d be an outbreak of joy and bells pealing across the land. There’s hopefulness for sure, but of the quieter kind – more along the lines of OK, let’s try to get it right this time. In any case, it’s way too early for cap-tossing.

So ICSA’s conference ‘Governance beyond Covid’, looking at the impact of the crisis on organisations, law and practice, could not have been more timely. And who better to join Claire in chewing over what this means for reporting, than investor Nadine Windsor, Global Head of Credit Trading and Investments at First Abu Dhabi Bank, with some $25bn of assets under management. When someone smilingly introduces themselves as ‘one of those who carried their boxes out of the Lehman Brothers building’, you know you’re in the company of one who’s seen wild times and come out the other side.

Nadine invests in companies across Asia, Europe and the US, so when it comes to what constitutes good and bad disclosure in the annual report (AR), she’s seen the gamut. An early question from the floor got to the heart of the matter:

Q: ‘Making an investment decision in this environment must be tough. What steps can organisations take to inspire investor confidence?’

Nadine’s short answer: No 2020 AR should look the same as the 2019 one – you have to write it from scratch. The longer answer was that companies need to acknowledge that their business has changed – and in the immediate future at least, probably not for the better. No point trying to conceal anything: we really were all in this together. ‘I’d rather read an annual report that says, for example, “this is why we were not compliant”, than one that attempts to sweep things under the carpet,’ says Nadine. Which, I felt, was a gentle way of saying that Nadine and her investor kin can see through a tightly woven Axminster anyway, so best not try it.

A single, meaningful story

So ‘full – but integrated – disclosure’ will be the watchword of the next round of reporting, with investors looking to the AR for answers. What was your risk management approach? What did you do about digitisation and remote working? How have you been treating your employees and communities? How were your ESG goals and activities affected? How do all these actions align with your values and strategy, to give a cohesive insight into your company? They don’t have to land fully formed and perfect. But they do have to stack up into a single, meaningful story.

Another tip: don’t let your story be told by a faceless ‘we’. Investors want to know who’s driving it. And they’re greatly comforted by a senior management team that clearly owns the company’s story and is prepared to answer for it. So the person writing the annual report must have proper access to these senior people to ensure the story is coherent, integrated and, above all, true.

Claire, the eagle-eyed writer, proved herself eagle-eared as well at this point, picking up on Nadine’s ‘person writing the annual report’ comment. Does that mean an annual report should have a single, experienced writer or editor, whether from inside or outside the company? Absolutely, Nadine agreed, putting that one in the back of the net for annual report writers the world over.

Audit under the microscope

Claire commented that this year, audit has come under more intense scrutiny than it has for a long time. The press bulges with stories of audit failures, and auditors themselves are getting spooked – whence the resignation of PwC from auditing Boohoo (whose ESG record was examined by Claire in August’s Falcon Windsor blog post). And the Brydon Review into the quality and effectiveness of audit calls for it to be far more informative and accessible to all stakeholders – by making auditors seekers of the truth, rather than checkers of numbers. There’s a whole lot more on this in Trust me I’m listed, and it makes for juicier reading than you’d expect.

Auditors themselves say that finding fraud is hugely time-consuming and costly. So what’s the outlook for audited companies – will a more investigative approach to audit cost more?

Nadine commented that audit is already changing. Auditors are taking a more advisory role; for example, helping companies disclose sustainability measures accurately. She predicts the industry will become more specialist and tailored, with much of audit’s box-ticking aspect being undertaken internally by companies.

Erm, said Claire, won’t getting internal audit to do more compromise the impartiality and thus integrity of audit? Surely you’ll still need rigorous external checks? External audits could work on an ad hoc basis, replied Nadine, and on a smaller scale; you don’t have to check everything at once. Of course, integrity would require companies to disclose how much of their audit was done in-house.

Claire clearly wasn’t entirely convinced, but with time running short, she reminded the audience that the next TMIL webinar, on Thursday 3 December, will in fact cover this and more, being ‘An auditor’s view’ with Maria Kepa of EY and independent governance expert Paul Lee.

Black, white and silver

The debate all sounded very nuanced for an industry hitherto regarded as black-and-white. And speaking of monotones, Nadine concluded by reminding the conference audience that the pandemic has a silver lining. Now is the time for company secretaries and governance specialists to tell senior management that investors expect the AR to be different this year – so let’s grab the chance to surprise them. Let’s be far more honest, and really tell our story.