Questions & Answers

A question for Donald Brydon: how much credibility can bodies like the FRC have when it publishes a self–congratulatory release on audit practices today with Wirecard still very real for many investors?

DB: The latest FRC Quality of Audit Report shows there is still significant room for improvement.  I am looking forward to the FRC receiving increased powers following the implementation of the Kingman Report.

How would you suggest we can increase the reach of the annual report to ensure our departments work is communicated more widely?

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Is there a role for the IIRC's Integrated Reporting framework approach? Is it useful? If not, why not? It is currently under review – what needs to change?

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Claire, how have you found the approach to writing reports in the current climate?

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Are the general public and other stakeholders actually interested in annual reports or is it just for investors (really)?

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The book is a really useful guide to how to do reporting well, whether for people who have been doing it for a while or those coming to it for the first time. For people who may need more guidance, are you planning to offer a training programme around the book and how to do reporting well?

CB: We are indeed – the authors have developed a programme, and we'll be launching it soon – in the autumn, ideally. We'll keep you posted.

Is the UK ahead or behind in corporate reporting?

CB: The UK's principles–based system of corporate reporting, with the 'comply or explain' approach and the onus on directors to decide what's important, is by far the best in my view because the onus is on the company to tell its audiences what it really thinks. And what companies don't say is often as revealing as what they do. The danger of rules–based systems like that of the US is that it puts all the work on the audience to work out what's going on, because it gives all the facts without the same rigour of explanation. It's far less revealing simply to fill in a list of disclosures! Of course multi–listed companies have to manage different systems – and the challenges are interesting, as discussed by the Co Sec of BP in a case study in the book.

PS: I agree. The risk of rules–based systems in my view is that they can more easily be 'gamed'. A principles–based model of the sort that we have in the UK can – and should – take a wider view.

Peter suggested that the mechanism of reporting is sometimes overused as a regulatory tool. Can the panel identify reasons when additional transparency should be used as such a regulatory tool — and when it should not? Does this approach place too much confidence in the influence (and attention span) of shareholders?

CB: Regulation is often a blunt instrument – regulators want companies to do x, and the easiest way to make them do it is to bung in a requirement to put in the annual report. The problem is that this approach often leads to less transparency because the regulators haven't considered the purpose of the annual report, or indeed the practical consequences of what they're asking, in devising the regulation, and so those consequences are often not what they are looking for. In Chapter 2 of the book I therefore urge regulators to talk to practitioners when they're thinking of devising new regulations so that the regulation is a) effective and b) doesn't add unnecessary verbiage to the annual report and in fact achieve the opposite it intends.

PS: In the UK, I think we are really well–served by the way in which the Financial Reporting Lab does exactly this, but unfortunately not all reporting obligations go through this sort of process. It will be great if regulators also read the book.

Should we not trust non listed companies? per the book title

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The most important facet of the annual report, other than statutory information, is the philosophy of top management. Top class management and promoters believe in transparency and dissemination of information. This is the differentiator.

CB: I couldn't agree more! The influence, involvement and direction of senior management and the board are what should come across in the annual report – and that requires open, honest communication. A report that is done well will give real insight into what the senior people are thinking – and too often, reports don't do this, they're just bland, corporate waffle that could come from anyone. The importance of this point is made time and again in the book by the contributors from the investor community. Of course the problem some practitioners have is that their senior team aren't that interested – which is why Chapter 3 on how to get the report done discusses that issue.

PS: you are both right !

What actions should we take to promote UK capital markets post–Brexit?

CB: The best thing we can do it to maintain and uphold the highest standards of corporate governance while continuing with our principles–based system. In my view the UK strikes the balance well between capitalist freedom and regulation. A UK listing gives companies a badge of quality. If we compromise that, we will lose our 'UK USP'. It's also why it's imperative that the government acts to sort out audit, as Sir Donald recommends in his review. Even more urgent in light of Wirecard – which, fortunately, was a German company, but still, it's a warning.

PS: Again, I agree. And in my view this is an area where the role of the company secretary gives UK companies a huge advantage. And one area that was always under pressure in Europe was the principles model of 'comply or explain' - the Commission was very fond, in my view overly so, of 'comply' and this may be an advantage for UK capital markets in the future.

Regarding matters covered in annual reports, do you think societal issues affect or determine requirements in the past and in the future. For example, the modern slavery report would not have been prevalent in earlier years like 70's and 80's.

CB: Reporting has developed as the expectations of companies and the purpose of business have changed. In earlier times, companies had a duty to their shareholders and no one else, and so the first annual reports were just an account of how the money had been spent. As companies have grown in size, and their influence on the economy, on people's lives, has also grown and changed, so too have the expectations of what they should and shouldn't be doing. We discuss this in some detail in Chapter 2 of the book, which also looks at non–financial reporting frameworks.

PS: Years ago, I read the annual report of one of the biggest companies in the late 19th century – if I remember rightly it was about four pages. You are absolutely right that requirements are driven by societal issues – my wish, though, is that we sometimes removed reporting requirements, rather than just increasing them all the time. Again, this is covered in more detail in Chapter 2.

With the UK target to get to Net–zero by 2050 or sooner, and with hundreds of thousands of spare ARA's from across the FTSE350 going into storage each year or gathering dust and only opened for reference purposes, should there not be a drive to move the ARA to be solely online in the very near future?

CB: I totally agree that it's a waste of resources to have boxes of unused annual reports languishing in warehouses – but in my experience of FTSE companies, there aren't an awful lot of wasted printed copies out there! Companies are pretty careful about their print runs now, for cost as well as environmental reasons. I think it's right that shareholders should be able to get a copy of a lengthy document at the company's expense if they want one (i.e. companies should post them a printed copy), but the regulations around that have already changed anyway so that only those who specifically ask for a printed copy will get one. It's also useful to have copies in companies' offices, particularly for those who work with them during the year. And some companies (generally smaller ones, some quoted in the book) use their printed annual report for other purposes too, to give to employees, as a marketing document for customers who want evidence about their suppliers for example. And the impact on the environment is considerably less if you have a carefully managed, efficient print run, than if people print them off themselves at home (possibly even one–sided!). Waste – no. Print when needed – yes.

PS: I agree. I don't think there is a problem with 'spare' ARAs, but certainly recycling should be encouraged.

The wider stakeholders – do they have somebody in the company to ask questions about the annual report?

CB: The company secretary is where to start, because they have a duty to shareholders. But otherwise it depends on the question, and who the stakeholder is. Start with the Co Sec though.

PS: Unsurprisingly, I agree. For me the key contact for all questions on the annual report – other than those that are clearly financial – should be the company secretary.

How can companies ensure that their annual reports are as streamlined and concise as possible while still getting their core message across?

CB: The biggest cause of overly–long and repetitive annual reports is writing to tick the box, not tell the story – this is a point echoed throughout the book by all contributors – co secs, comms people, investors and so on. And it's at the heart of chapter 1 of the book, which explains how to avoid this problem – by explaining what a story is and how to approach it for the annual report. If you start with your story, you will tell it concisely and clearly – and you can then go back and check that you've ticked all the regulatory boxes. If you start with the regulations you'll get confusion, overlap, and a murky soup of information that adds up to nothing meaningful for the reader. That's because regulations are many and varied, and are not written with the reader of the annual report in mind!

PS: Better writing! Claire is quite right about writing to tick the box – when we judge the annual awards, it is depressing to see that some companies still stick to boilerplate wording that could apply to almost any company and is sometimes overly legalistic. This is your report – why would a company not want to make it about itself? It is possible – because some companies do it very well.

Over the last ten years, let's say, are reports getting better or worse?

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If you wrote the book in 10 years time, what would be different?

CB: If the regulatory system in the UK, and the purpose of reporting, stay pretty much the same, then not a lot, except for Chapter 2 which discusses non–financial frameworks, themes, issues and trends – and would, I hope, need updating within a year, not just 10! The principles of good communication and planning that lie behind the ultimate purpose of reporting – to engender trust with your stakeholders – don't change that much, and so both why the annual report matters and how to do it well won't change that much either.

PS: We are seeing an increasing focus on ESG, particularly the S of ESG and of course sustainability and climate change are an increasing issue. I think we will see increasing reporting requirements in these areas.

Given the title, how well will this relate to unlisted entities?

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How can the reporting process become more dynamic i.e. more of an ongoing conversation with stakeholders versus a once a year or so 'broadcast?  I'm so aware of how fast the world is turning, often reports are out of date by the time they are published...

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Do you think that listed companies are doing justice to the annual reports as the annual reports are getting thicker and it is now an integrated report encompassing the voluminous data which is in addition to the audited financial statements (this is also a thick document with all the new IFRS) included in the pack?

CB: This is exactly why this book is needed! Many companies don't do justice to the annual report and enable it to achieve its purpose – not because they don't want to, but because it's an intellectual and managerial challenge, and there has been no real guidance on how to do it well. Until now – so do buy the book!

PS: And in my view the content of the annual report should be integrated, with the front and back halves clearly linked.

What do you think of the ideal standard of annual report as listed companies are tick boxing the requirements?

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I think it is best to be original in reporting giving the true information and what is anticipated.

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I was interested that more errors were appearing in documents produced at home. From my experience it is not that it is harder to focus, personally I find it easier to concentrate in a quiet room rather than a busy office but that we are not using printers to print and double check our work as we would in the office.

CB: The difficulty of focus and the volume of errors aren't necessarily causally linked. Focus has been more of an issue for drafting and  creative work, where the office environment that people are used to has often been more conducive to that kind of intellectual endeavour. And the errors point may have more to do with the right people not being able to get together to discuss amends and check things – as well as the technological issue I referred to of it being difficult to check lengthy documents properly without the right kit. But during this period, a lot of people had families at home and found it impossible to get the hours of sustained concentration they needed when there was the possibility that you'd get interrupted by the kids!

I think best practice would present main points to consider so nothing important is missed out.

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From an investor’s point of view, isn’t it important to be able to compare one company with another? Isn’t it this more difficult when each company approaches reporting in a different way?

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Given many investors are keen for a standardised reporting framework in non–financial reporting to aid comparability for them is there a balance between that and tailored disclosures?

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What do you think of text and charts only annual reports without pictures as pictures can be housed in the website?

CB: I discussed this point when someone asked about design earlier. Design is there to illuminate content – it's not there just to be pretty. And good annual report design does just that – it brings to life content. Annual reports are not novels that have their own inherent narrative pull. The reader needs help a) to be engaged by the story and b) to find the information they're looking for. If a photo makes the story clearer, and easier to understand, then use a photo. If a chart makes the point better, use a chart. We cover the principles of good design in chapter 4 of the book – but bear in mind, as I said at the end, that as the digital generation gets older, the expectation for more visual, immediate, pictorial content will only increase.

PS: And don't forget that you have different audiences and some understand images more easily than text. I thought that the book was extremely helpful on this.

Can there be a summarised report and a detailed report?

CB: In the old days when it was print–first, and the early generation of websites were little more than libraries of information, many companies did in fact produce a full annual report and a summary annual review, both of which were printed. But with the sophistication of websites today, many companies produce a digital summary – the full annual report is published as a downloadable pdf document, and they include a quick–read online summary with the key story and information on the website, which also has clear links (or should do!) to download more information.

PS: There can – but there is a tendency to duplicate a lot of information in two separate documents. For me, a better approach is to write a better report and think digital first.

As corporate governance has gained momentum in the boardroom and in the annual report, what do you think are the important areas of corporate governance reporting?

CB: The real heart of governance reporting is giving insight into how the board thinks and what issues the directors have been wrestling with and how they've dealt with them during the year. That's what people want to know – as discussed by some of our investors in the book. The problem with governance reporting is that so much of it is just a 'blah' description of the same processes that everyone else has, without any real insight. This is why the chair's intro and the committee chair letters are so important – if they are done well. Too many are just boring lists of information with no insight whatsoever. The letters – which after all are from named individuals, so one would expect to hear their voice and their views – should give us the insight, with the regulatory disclosures going in a clearly marked section for those who want them.

PS: I agree. The really good reports that we see are personal and insightful, explaining clearly how the board works and what it has done.  If it is just the same as everyone else's report, how does it add value for investors?

While academic articles are subjected to plagiarism screening, to avoid the cut and paste or reusing the previous year report, do you think that annual reports should be subjected to the same screening (to avoid more than 50% repeated words) as directors and management should make good reporting as it is an annual report to the shareholders?

CB: ideally people would write annual reports from scratch each year. And they should certainly write the story of the year from scratch, and scrutinise every other aspect of information for any updates. But, until regulation changes to allow all the mandatory disclosures that don't need to be in the annual report to be somewhere else, then you're going to get repetition – after all, there are only so many ways you can describe the role of the chair, for example, when it doesn't change, and if it doesn't change, then why should the description of it change, if it's been clearly and engagingly described in the first place? Chapter 3 on planning and management, and Chapter 4 on writing for your reader discuss these issues.

PS: It's tempting, but there are some reportable things which don't change year on year and so I see no reason why they need to change if they are already done well.

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