The jury’s out about annual reports, our poll finds
Companies are undecided about whether the quantity of information contained in annual reports is a good or a bad thing according to our survey of governance professionals in conjunction with the ICSA: The Governance Institute. Some 39% of respondents feel that companies are required to disclose too much information, while a similar amount (38%) disagree and 23% are unsure. Despite this, a clear majority of respondents (78%) believe that annual reporting is still a useful exercise for stakeholders, with only 7% believing it is not and 15% unsure.
Of those who feel that too much information is disclosed, viewpoints range from the very cynical ─ ‘Much reporting is self-congratulatory waffle’ ─ to those laying the blame squarely on the shoulders of the regulators ─ ‘I think the regulators, including the ones who set the accounting standards, are too isolated from real business life, and this has an adverse impact on the rules they come up with.’
Detractors of the annual report offer a number of criticisms, including the following:
- Companies are required to produce more and more information, some of which is really too detailed to be totally comprehensible to shareholders
- The annual report’s usefulness gets diminished the larger the report gets
- It has just become a tick box exercise
- The annual report has become a source of obsolete information and unnecessary expense which could be used for more critical matters or investing in better governance practices and training. It would be more useful for stakeholders to receive information in real time.
Defenders countered some of the views with the following opinions:
- The information companies are required to disclose is extremely useful in giving investors and others a comprehensive understanding of the company, its culture, its business and its longer-term prospects
- It is the only time the non-institutional shareholders are given the chance to see a comprehensive report from the company’s board that is not governed by marketing spin
- Until we move to a time when investors can log in and view verified live financial data for companies (some way away!), annual reporting is the best way to provide the necessary transparency on performance.
“The crux of the matter lies in the amount of time, money and resources required to produce a once-a-year product that is read by a very limited audience. Certain information might more usefully be reported online, while it would also be beneficial if companies could move away from boilerplate to report on more bespoke matters of relevance to them and their stakeholders,” says Peter Swabey, Policy and Research Director at ICSA: The Governance Institute.