Practical perspectives on reporting #6: A director’s view – are we all on Board?
By Tamara O’Brien, TMIL’s roving reporter
Quick, think of ‘The Board’ – what’s the first image that comes to mind?
If you’re anything like me, it’s a long table with men sitting round it. Perhaps there’s a touch of Mount Olympus in there too. Think Yes Minister with gold sandals.
It’s an image that forward-thinking companies and directors are working hard to dispel. And, with challenges coming from all directions – from diversity to ESG to Covid-19 – change is happening, whether directors embrace it or not.
In welcoming us to the first Trust me, I’m listed webinar of 2021, Claire first of all wished us a speedy vaccine – there’s a greeting for our times – then moved on to the role that Board directors play in telling the truth about their companies. We’d just seen the dangers of the loss of truth play out the night before in Washington DC. Once again, it seemed our webinar was freighted with timely significance.
The main source of truth about a company is – or should be – its annual report. Directors are responsible for deciding what content is relevant (‘material’) to their business, and for signing off the document. But how much they really scrutinize the AR, and how involved they are in its creation, varies wildly between companies. At its worst, this results in directors signing off fraudulent accounts, as at Wirecard; or endorsing misleading ESG statements, as at Boohoo.
Most directors act in good faith of course, but nonetheless, what could be described as ‘fuzzy messaging’ in the AR is not uncommon. This disconnect is widened by the ‘perception gap’ explored in Trust me, I’m listed which reveals some startling statistics from surveys run a couple of years ago:
91% of directors and 95% of auditors had ‘high levels of confidence’ in the quality of their company’s reporting
But only 38% of investors trusted this information enough to make decisions based upon it.
No pressure on our Board director guests, then!
And indeed there wasn’t. Chris and Tanya’s enthusiasm, and vision of the positive influence the Board can have on reporting, attested to broad shoulders under those weighty responsibilities. Here are their thoughts in response to some questions from the floor.
“How do you make ESG more than just ticking the box – how do you make it real?”
Tanya reminded us that it’s the directors’ responsibility not to let glib statements go through without evidence; while acknowledging that it can be hard to make consistent comparisons in ESG activities. Chris agreed, adding that what directors can do is provide an honest, balanced view: ‘Here’s our set of ESG ambitions, here’s how far and how fast we can move towards them, and here are the associated risks and costs.’
The pandemic has certainly helped make things real. In an interesting aside, Chris said it had crystallised companies’ thinking around what’s critical to preserving their enterprise – and it’s been extremely useful to distil that message in the AR. The Milton Friedman view that companies simply exist to maximise profit now seems hopelessly misguided. It’s about what is and isn’t important.
“How do we make the AR – a long-form narrative document – more accessible to a digitally-connected audience?”
Chris’s view was that soundbites that bring out the essence of your business are perfect for LinkedIn or Twitter, but they have to be based on the bank of hard facts in your AR. If you’re disciplined about the quality of information in your report, you can use it for any number of different audiences.
Tanya reminded us that, with the right designers, anything’s possible. Border to Coast Pensions Partnership put their annual report online in a way that’s beautiful to read. Same content but in a digital format.
“In my experience, not all directors are as engaged as you are! Quite a few see reporting as a tedious regulatory burden, which makes it difficult for us to get the focus on it that we need, and makes the whole project a nightmare. How can we persuade people like that of the importance of reporting?”
Tanya took a moment. How to reply with the wise diplomacy for which directors are so renowned? With a frank and friendly acceptance of human nature is how. A longtime reader and writer of annual reports, Tanya nevertheless understands that the sheer volume of facts, figures and data can be intimidating. And not every Board member feels able to put up their hand and say so.
So it’s important to involve everyone in the process right from the start. An informal session with the whole Board, going through the plan almost page-by-page, helps everyone get familiar and comfortable with content. Directors have more input; more diversity of thought goes into the annual report… wins all round.
Chris conjured up a rather different mental picture, of Corporal Jones piping up ‘Permission to challenge, Sir!’ His point was that ‘tolerance of debate’ does vary between organisations. But to move forward, company structures must allow – even encourage – a level of disagreement.
Claire chimed in with a financial angle: considering all the benefits reporting brings to a business that Chris has talked about, the annual report should be seen as an investment (ie something that delivers a return) rather than simply a cost (which does not). Directors tend to understand this kind of language and if you can demonstrate all the benefits of doing it well, as set out in the book, then they’re more likely to see the light.
“And a final piece of Board advice for our audience?”
Tanya: involve your directors early in a thorough briefing meeting so they can understand what they’re looking at, ask questions, be clear early on.
Chris: 1) Start early; 2) Engage broadly; 3) Always ask why – that’s how you’ll promote reporting up the corporate agenda, use resources in the right way, and articulate what the company stands for.