By Tamara O’Brien, TMIL’s roving reporter
Yes, shock admission by one of the UK’s leading governance folk – you heard it here first! But before we dive into that, let me tell you about a dream I had recently after copyediting a sustainability report. Because it is in many ways relevant to today’s topic.
I dreamt that a designer rang me up, asking me to define the word ‘sluice’ (quite proud of my brain for coming up with that one). Well, I reply, it means washing. So why not just say washing, he demands: what do they mean by sluice? Suddenly the situation flips into one of those stuck-record dreams. I’m riffling through endless notebooks, looking for who said sluice, when, in what context. This goes on for what seems like hours. I apologise to the waiting designer – who replies languidly, Oh don’t worry, being a freelancer is like going on a blind date, you never know what you’re going to end up with…
What this dream tells me – apart, possibly, from some unresolved issues regarding the designer-writer relationship – is that words matter. Even in the place where, in the reporting world, they go to have a nice long nap.
The place in question is the governance report. Because if the strategic narrative is a company’s vibrant kitchen/dining/living space, governance is its unloved office-cum-spare-bedroom. Strictly utilitarian. A jumble of household items, consigned to the category of ‘We have to have this room with these things in it, and we’re not even pretending it’s pretty.’
By that analogy, today’s guests – two of the UK’s most knowledgeable people on the subject of governance – could be considered masters of interior design.
Consulting Director (formerly of PwC; erstwhile regulatory standard setter; frequent adviser to Falcon Windsor) Janice Lingwood, and consultant (formerly the FRC’s Director of Corporate Governance; deviser of the Corporate Governance Code) Chris Hodge both set regulatory standards, advise on communication, and generally promote greater understanding of the G in ESG.
No excuse for boilerplate
Claire began proceedings with a reading from chapter one of Trust me I’m listed, ‘Telling stories and ticking boxes’. It argues that story is just as important to the governance report as it is to the strategic report. Anticipating a plaintive howl of protest from her readers – the companies obliged to narrate such riveting items as their governance policies, procedures, committees and compliance structure – Claire explains in TMIL how to go about it.
Which is, basically, to go back to first principles in storytelling. Every story needs a hero, and in the governance section, that would be the Board. What have they thought, done, grappled with this year? There’s a surprising amount of story you can unlock using this method, and it’s all covered in the book. Go buy it.
Make it easy to read
As our experts pointed out, the main audience of the governance report – institutional shareholders and proxy voting agencies – are usually reading a flood of such reports at the December year-end. So it’s wise as well as kind to make their Easter holidays a bit less burdensome. A logical structure that follows the Corporate Governance Code (compliance policies don’t change from year to year – though should be highlighted if they do of course), accompanied by a magazine-like run-through of the Board’s actions, challenges and how they’ve sought to understand the views of stakeholders over the year, will leave a favourable impression.
There’s no getting away from the fact that, in Chris’s immortal phrase, ‘some of this stuff is just dull’. But all good investors know that the greatest opportunity lurks in the neglected and overlooked. And questions from the webinar audience elicited some top tips from our experts on how to optimise the value of the governance report.
Q: How do we get round the mindset of ‘we don’t want to disclose more than we absolutely have to’? That mindset is changing in the strategic report, why not in governance?
Janice: That’s partly down to the involvement of proxy voting agencies, who are really into policies, processes and terms of reference. A company can sidestep a lot of clutter by stating upfront ‘We’re changing how we report’, and making it clear how. Also, involve the committee chairs and non-executive directors, and encourage them to be more open. Finally, there are lots of reporting awards out there – why not have one for Best Chairman’s Letter?
Claire: It’s always a challenge – who’s going to be brave and go first? Covid has presented an ideal opportunity to be more honest. We all know the challenges it’s brought, and also how things like Zoom have opened up greater and more informal interaction between leaders, employees and stakeholders. Let’s take this opportunity to change the way we communicate for the better.
Q: Doesn’t ‘boilerplate’ make it easy for investors to make comparisons between companies?
Chris: The governance report is there to provide accountability, but that doesn’t mean one size fits all. If the Code is too prescriptive, companies will simply work backwards and fit their reporting around it. The emphasis has to be on companies expressing themselves.
Q: Are ‘purpose-led’ strategies the way forward?
Janice: Absolutely. If your purpose is unique to you, you can hang all your reporting off it, and ESG is naturally embedded in it. Most companies I work with do this, and it produces the most powerful reports.
Chris: I agree. If it’s genuine, it works well. If not – and you can always tell, when you read a report – then it’s just purpose-washing.
Which brings us full circle back to my dream. Purpose-sluicing in your governance report? Just say no.