Every week we talk to, learn from, and are inspired by amazing people doing innovative things in the world of social value and we are excited to share some of those conversations with you.
This month we speak to Claire Bodanis about Annual Reports. Often seen as a tick box exercise to keep regulators happy, Claire argues that with the right approach the Annual Report can be a tool to do better business, communicate with stakeholders and ensure your staff teams are strategically aligned.
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What is an annual report and why have you written a book about it?
Lots of people think an annual report is just a legal requirement for businesses to report the year’s figures to their shareholders, but it’s actually much more than that. It’s an opportunity for organisations to tell their story (which is part of a listed company’s regulatory duty anyway), demonstrating how they are putting their values into practice, and mapping out where they are heading. It’s essentially a contract of trust between a company and all its stakeholders - not just its shareholders.
Too many companies think of the annual report as a regulatory cost – rather, I suggest they think of it instead as an investment. This is a product that you are going to have to put money and effort into creating anyway, so why wouldn’t you want to produce it in a way that will result in maximum benefit for your organisation and give you a return on that investment?
What does best practice look like?
I’m on a mission to expunge this phrase from the reporting lexicon! The concept of best practice assumes there is one right way to do something, and on the contrary, to do reporting well, your report has to be unique to you. The problem with labelling things ‘best practice’ is that it implies a mythical gold standard of what a report should look like or what it should say. For reporting there is no such standard – and nor should there be. What best practice looks like for one organisation won’t be the same as for another. What makes a good annual report is whether it meets your company’s objectives and tells your company’s story in a meaningful way while also complying with the requirements and regulations. There can of course be shared ideas and principles for useful ways of doing things, but a good report will always be a unique report.
Storytelling is key. An annual report full of backdated numbers doesn’t mean much to most people, but a report laid out as a narrative that paints a picture of what the company is doing and its plans for the future; that document becomes much more useful and effective.
What are the benefits of producing a good annual report?
Internally, the annual report project is an opportunity to have a strategic discussion at senior level about all aspects of your company’s strategy, values, engagement, impact and future direction – since this is what you should be doing to produce a good one. The process of doing the report can therefore help you manage your business better by making sure that everyone is on the same page. And, because of the depth that the report goes into, it can also help you know what’s going on, and spot areas of risk – this is particularly useful in larger companies where directors are less likely to know what is going on at grass roots across the whole business.
From an external perspective, when the report is done well, it has an immensely useful function as the heart for all your other communications. And good communication is fundamental to a company’s success.
What are your views on ESG reporting? (Environmental, Social and Governance)
People are starting to recognise that value is more than financial, and that there are long-term benefits to businesses that actively address these issues – because it makes them stronger and therefore better able to deliver financial returns in the future. Ultimately companies that continue to just prioritise profits now won’t survive. I was saying the same thing twenty years ago when we called it CSR and it was a niche add-on, but today people have woken up to how important it is. Everything that is happening around climate change and, even more immediately with Covid, has bought the importance of ESG into sharper focus.
The challenge is that ESG reporting can be quite difficult. People love a list because it’s easy to tick it off and say you’ve done what’s needed, but when it comes to ESG this completely misses the point. To report properly you need to identify the specific ESG issues that are most relevant to you and develop a plan to manage those – and these won’t be the same for every company, even those in the same sector. Financial reporting might use the same tools and measurement criteria, but this doesn’t work for ESG. It’s not just sector specific, its company and location specific.
Does that mean you think there isn’t a need for a standardised ESG framework?
At some level its useful to have a comparable framework or set of requirements but it needs to be flexible enough for companies to report on what matters to them.
I think that’s why our system of regulation in the UK is a good one, because it’s based on principles, and directors have to decide what is and isn’t relevant (‘material’ in reporting speak) to their company. It is their duty to define that and explain why they think that in the annual report. That’s why a well written annual report is so revealing and much more useful than a tick list. It helps you to see what the company thinks, what they value and what they believe matters most.
That’s also why I think public listing is so important to a democratic society. As well as giving ordinary people ‘the public’ a stake in the corporate world, listed companies have more stringent reporting requirements than private companies. This puts an onus on listed companies to behave as responsible citizens, offering up their business for public scrutiny, as well as public ownership.
What are your top three tips for organisations wanting to do annual reporting properly?
Read my book! It’s all in there. But also….
Think about what you are doing: An annual report is not a junior’s job. Convene a conversation at the highest level to discuss what the focus for the annual report should be and how you are going to make it work for you.
Start early: In order to do this properly you have to start thinking about it months in advance.
Think about the reader: The big mistake so many companies make is that they write only for themselves. They are not thinking about who is on the receiving end of the information, and this makes too many annual reports incomprehensible. What do you want your reader to understand about your business? This should be your starting point – you can always go back and check you’ve ticked all the regulatory boxes later. I interviewed one of the Middle East’s largest investors for the book and they described the annual report as a ‘shop window for investors’. For me, the annual report is a window for all your stakeholders – and businesses that fail to recognise this are missing out on a big opportunity.
This article first appeared as part of the Social Value Files, sign up here to keep up to date.
Claire Bodanis is one of the UK's leading authorities on corporate reporting, published by the Chartered Governance Institute. She is the founder and director of Falcon Windsor, a specialist corporate communications and reporting agency, and works with some of the UK's best known companies to deliver thoughtful, creative and meticulously accurate corporate communications.
You can buy Trust Me, I'm Listed here
You can buy Trust Me, I'm Listed here