This article was first published in the July/August 2017 UK edition of Accounting and Business magazine.

In its annual survey The Complete 100, now in its 12th year, the communications consultancy Black Sun identifies trends and best practice in corporate reporting by members of the FTSE 100. Our 2017 report finds that many companies are still simply ‘ticking the boxes’ when selecting information for their annual reports.

On becoming prime minister in 2016, Theresa May put a strong emphasis on restoring faith in corporations, sharing wealth and listening to stakeholders. Others have chimed in, including governance luminary Mervyn King and CEO of BlackRock Larry Fink. We have had a green paper on corporate governance reform; an inquiry by the Business, Energy and Industrial Strategy select committee; and an announcement of a review of the UK Corporate Governance Code by the Financial Reporting Council, which is updating its Guidance on the Strategic Report. Common themes throughout are the need for governance reform, for stakeholders’ voices to be heard and for directors to take note of what they say, as well as issues around executive remuneration and a focus on long-term thinking and viability. All of these concerns will have implications for corporate reporting in the near future. 

However, the message doesn’t seem to have hit home with management, who are missing the point when it comes to articulating their value-creation story in their annual reports. 

We are seeing clear trends: companies providing an investment proposition that sets out strengths and opportunities (30% of the FTSE 100 are doing this, up from 10% in 2014), and using business models to articulate their value-creation process. They are also discussing the resources and relationships they depend on and the types of value they create (63%). 

However, the story begins to unravel when it comes to truly insightful, integrated reporting that shows the connectivity of information. In other words, many reports fail to tell a chronological story, in which each section sets the scene for the next, to contextualise thought processes and rationales. In particular, companies fall short in their attempts to provide a roadmap that convincingly explains how they proactively, rather than reactively, respond to market drivers, and how these determine their current and future strategy (only 7% set out how market drivers shape strategy). 

Too many companies have generic and static, overarching strategic visions, such as ‘to be the best at what we do’. Rather than describing a journey with a definitive endpoint, such bland positioning works in any market – bull as well as bear – and makes it difficult for companies to fail. It therefore tends to stay in place for years on end. 

There is little change in how companies are evidencing their long-term planning, with fewer than ever setting out strategic priorities with timelines of five or more years (10%, down from 13% in 2015). Encouragingly, the narrative throughout many reports suggest companies are investing in improving existing capabilities and in building new ones. However, information is not presented in a systematic manner that allows the reader to understand how this investment is aligned with the future direction of the company and how it will affect its prospects. 

Purpose beyond profit 

But we are seeing some progress. Black Sun’s 2017 survey shows a greater focus on wider purpose (60% of companies set this out), with the value created for stakeholders, and the alignment with corporate values and culture, being common themes this year. In particular, the word ‘stakeholders’ is used extensively throughout the annual reports of quite a few of the FTSE 100. 

Some companies are starting to respond to developments in the corporate reporting debate. But this progress is still in its infancy, as few reports go beyond making vague commitments to stakeholders. Where they do, these are mostly discussed in the report’s dedicated sustainability section, suggesting that management thinks this is ‘the right thing to do’, rather than using these considerations to steer the future direction of the company. For instance, very few companies set out what stakeholders can expect from them (11%), or provide a narrative to suggest that stakeholder engagement feedback has helped shape their strategy (9%). 

This year’s Complete 100 report is subtitled, The real drivers of value: lost and found, because we are hopeful that companies are at least beginning to articulate these drivers of value.

It is clear that there is momentum around a number of common themes, and we are optimistic that we will see incremental progress as companies start to feel the pressure from regulators and other stakeholders in this debate. Most importantly, we are hopeful that FTSE 100 companies are coming to appreciate the business benefits of integrated reporting. 

Anne Kirkeby is lead corporate reporting consultant at Black Sun