By Tamara O’Brien, TMIL’s roving reporter
Finally, Spring! The force that through the green fuse drives the whatsit. Let us tiptoe through the tulips, shake the darling buds and ‘lhude sing cuccu’.
The corporate reporting community, however, might look upon the season of renewal with a degree of apprehension. Reporting bodies are burgeoning… the regulatory environment is abuzz with changes to the UK Corporate Governance Code… and the green shoots of efforts to reach net zero are everywhere to be seen.
That’s because the world looks to companies to bring its most progressive policies and intentions to fruition; thereby creating fairer societies and saving the planet. All while succeeding at the equally difficult but less lofty business of making money.
This mission finds its apogee in the annual report (AR). And for readers in the know, it’s often the limelight-shunning practice of governance, with its review usually tucked towards the back of the AR, that truly lays a company’s soul bare.
Meet the Code makers
With their remit to mediate between the government/us and business/industry, the regulator’s role is hugely influential. Our experts today both have backgrounds in regulation, but are particularly dedicated to helping corporates understand the principles behind governance, so that they can respond to, and communicate effectively on, its twists and turns. Who better to ask what’s about to be sprung on governance and reporting colleagues?
Maureen Beresford
After congratulating Claire on her impassioned speech about AI in reporting (see callout) – and reassuring her that it’s included in the FRC’s upcoming consultation on revisions to the UK Corporate Governance Code – Maureen’s first point was to define parameters. So much to discuss, so little time: so the conversation was limited to the main issue of the day: viz, changes to said Code.
There’s no denying it’s a ‘perfect storm’ for regulation, as Maureen put it. I pictured it swirling around us, Wizard of Oz-style, on a bare, post-pandemic prairie. Caught up in it are corporate failures, demands related to AI and ESG, shareholder activism, demands for more reporting, more assurance…
Despite all, Maureen wanted to emphasize that the standard of governance reporting in the UK is good, often high. ‘On the whole, the information you can get from a UK annual report is useable and it’s accurate – with the help of Falcon Windsor!’ [I feel obliged to insert here, “with the help of agencies like” FW, but actually, it was just us that Maureen mentioned…]
Another big positive is that companies are great at moving with the times. Who’d have thought three or four years ago, she said, that many would be putting ‘purpose’ at the heart of their reporting and what they do – using it as a tool to help them move forward, and demonstrate what their strategy is trying to achieve?
Excellent point I thought, especially in the face of all the cynicism around purpose. Of course, cynicism is sometimes justified. ‘Purpose-washing’ must be called out, and to my mind smirked at. But on the whole I’ve never met a more earnest bunch of people than those engaged in the struggle to shift attitudes, in any aspect of business.
Maureen’s point was that companies are already doing many of the things that bodies like the FRC ask them to report on. It’s more about making the impact of governance on their decision-making clear in the AR.
And she spelt out how to do it. Be brave. Tell your story by focusing on what’s close to the company’s heart – you don’t have to cover every aspect of the Code, just let the reader know why you’re not covering some areas. Explain how what you do makes a difference. Don’t use boilerplate. Don’t fall back on platitudes like ‘diversity is important to the Board’ or ‘our Chair is available to speak to shareholders’, if you can’t back them up with concrete evidence. Don’t mention policies if you can’t give examples of them working in practice.
Janice Lingwood
Falcon Windsor has worked with Janice on governance and all things regulatory for a number of years. She’s that rare beast, a governance expert who’s also great at communication, with experience of the very different worlds of accountancy, regulation and comms. She gave us a fascinating insight into her observation of what happens whenever new regulations come in – especially those relating to narrative/governance reporting.
The first reaction is panic. Companies pay for/listen to/attend seminars on advice about what they must now report. Inevitably, the result is confusion and feeling overwhelmed – so companies seek safety in ultra-compliance. Good communication goes out of the window, and readers can end up understanding less about the company than they did before the well-intended new disclosure. Fast-forward a few years, and the company feels confident enough to break out of the compliance mindset [or in my experience, a new team comes in, with a critical eye to what’s gone before]. Communication improves… until the next new round of regulation, and the cycle repeats.
We’re not incognisant of the fact that this in itself is one such seminar, and they do have a place of course. The trick is not to get into the weeds, as Janice puts it. She predicts the changes to the Corporate Governance Code will be an evolution, rather than significantly different things for companies to do. Hold hard, is her message: you should be able to address the tweaks to things like malus and clawback (what have my divorce solicitors got to do with it, haha) quite easily. She advises focusing on the most significant areas of change, which will be around internal controls to prevent errors in a company's financial reporting process.
Above all, continue to think about how you communicate in your governance review.
Cut the clutter:
Don’t just parrot the Code
Don’t bury key information in dense narrative.
Think about your audiences:
Institutional investors want to know how you’ve spent your time, the challenges you’ve faced, and what you did about them
Proxies and governance specialists want to know about your policies and processes – so give them this information in one place. Keeping your ‘housekeeping’ separate in this way provides a consistent and easily updateable structure, while freeing up precious editorial space.
Final words
Janice: Don’t be overwhelmed!
Maureen: Tell your story and don’t worry about anyone else’s.