Corporate Governance. Making the Middle More Central.

You have probably heard your design agency refer to your Annual Report as having a front, middle and back. Research shows that this generic and siloed approach to investor communication makes annual reports disjointed and suggests that governance is an academic exercise, divorced from the running of the business.

In the wake of the financial crisis, the focus on corporate governance is more intense than ever. The new code from the UK’s Financial Reporting Council (FRC) has been followed by another in the US from the New York Stock Exchange (NYSE), and there are further developments to come.

While governance has continued to evolve, the way companies report it has not. The typical governance section in an annual report is driven by the need to disclose rather than the desire to communicate.

The new UK code, though, seems set to change this. One of the FRC’s principal conclusions is that companies should follow the code’s spirit as well as its letter. In our view, this applies as much to the way companies communicate governance as it does to their governance itself.

When writing their annual reports, most companies have a single question in mind about governance: what do we have to say? Following the code’s spirit requires companies to consider a much broader and more meaningful set of questions, such as:
– Why is this subject important to investors?
– What do they want to know about it?
– How can we most effectively explain it?
– What has changed since last year?
– How does it tie in with the rest of our report; strategy and business model?

This approach will lead to a very different, more integrated and more useful report, avoiding what the FRC calls ‘the fungus of boilerplate’ and the ‘dead communication’ it results in. It may also mean going beyond the UK’s disclosure requirements. The NYSE, for example, encourages companies to talk about management’s role in governance, a discussion which would undoubtedly be valuable for UK investors.

On its own, however, adopting the spirit will not be sufficient for successful communication. Companies will also need to focus on how they present their information. The following tips are just some of the ways you can get greater focus and attention on your messages:

– Put a human face on your governance reporting by including letters from the chairman and the chair of the remuneration committee. These are also ideal places to set out your key governance messages.

– Use summaries or ‘at a glance’ pages to make your governance section work for skim readers and to provide context for those who go on to read the detail.

– Think about the structure of your governance section and ensure it has a narrative with a  logical flow, which is easy to follow and more likely to convince your readers.

What about specific areas for improvement?
The new code emphasises the role and effectiveness of the board. Companies need to communicate clearly in these areas, particularly if they wish to explain rather than comply with the recommendation for directors to be re-elected each year.

In addition, most companies fail to make an explicit connection between their strategy, performance and directors’ pay. The onus is therefore on companies to explain how their management are incentivised to achieve their strategic objectives. Indeed, the UK government may make this a requirement after its
latest consultation.

This continually changing landscape should not deter companies from reassessing their governance reporting. Since disclosure requirements change when current practice fails to meet users’ needs, companies who really consider what investors want should find that they anticipate these changes, making compliance
much easier.

In the meantime, following the spirit of the code will help align companies with the
FRC’s second conclusion – that investors and boards need to improve their interaction. By enhancing their reporting, companies will create better-informed investors who can engage in an effective and mutually beneficial way. As always with reporting, it will be the companies who put in the most effort who get the most out of it.

Finally, pursuing the spirit rather than the letter of the code will make a substantial difference to the success of online governance reporting. A communication-led approach, which brings key messages to the fore and focuses on the needs of investors will be far more effective online than the dense, text-heavy, compliance-led approach which currently dominates.

Better interaction design will also make it easier to integrate governance reporting into the rest of the annual report, through linking to relevant content so that investors can quickly gain the full picture. The result should be a transformation
of investors’ experience of governance reporting.

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Dawn of engagement for online annual reports

I was encouraged to see an article recently on online annual reporting that raised several issues Carnegie Orr has come across recently. The article began by picking up on the lack of understanding some clients have with technology.

I’m sure most agencies have experienced this at one time or another. We have found this to be a key component to successful project management and client services. Delivering digital projects, particularly complex corporate websites, requires a skilled approach to successfully communicate the technological aspects sometimes associated with digital media.

Being able to communicate clearly and in layman’s terms is as much a part of the job as delivering the work itself. If trust and confidence exists, in many cases clients not only understand the complexities but are genuinely excited about the opportunities a digital annual report can present to help them tell their story, that the printed report can’t.

Of course there are clients who still see an online annual report as an unnecessary expense and additional workload they could do without. Increasingly, however, this view is marginalised and exclusive to smaller companies, specific sectors or those with a very small shareholder base. It’s unlikely to come from companies with technology, communication or innovation at the heart of their strategic direction, where digital communications are an obvious way to demonstrate their strategy and the strength of their proposition.

In the article, a question was raised: "How to get the best from print and online at the same time?" This is a critical success factor in the uptake of online annual reports.  Too many online annual reports are still managed, or should I say 'dealt with' as an add-on to the printed version. Agencies still tend to go through the process of creating the printed version and then hand it over to a digital designer and developer to simply ‘implement’ it online.

Research into online annual reports continues to throw up concerns over readability, which is a natural outcome when the digital execution is not considered early enough in the process. There is nothing new about these issues. If you look back to the early days of consumer digital marketing, ad agencies would typically develop creative concepts for traditional channels and then hand the work over to a digital agency to "do something online!"

Thankfully, this situation has changed over the last five years (largely because the market and a sharp increase digital usage has demanded it), with digital agencies increasingly involved in the initial ‘top table’ discussions.

The same can be said for corporate reporting.  The process for design and delivery needs to run simultaneously; when the print team and Information or User Experience Architect should be working in unison; planning the pagination, structure, navigation, experience and interaction model. Working this way significantly improves readability and ease of use and provides stakeholders with a richer experience of the report and the company online.

It is encouraging to see some research that suggests the usage of PDF formats as the sole provision of an online annual report is in decline. While a PDF download of the annual report in the investor section is useful, it is still just a print format and, as a stand-alone piece of communication, even an interactive PDF does nothing to provide the audience with a fulfilling experience.

The article also makes reference to future developments in online reporting: XBRL and quarterly reporting. There are clearly signs in the industry of a movement towards reporting in real-time. In today’s ‘always on’ society, real-time conversations are taking place about businesses and, of course, you can now search these through Google Real Time. Consequently, the online annual ‘report’ could soon be construed as an outdated communication model. It’s likely the move towards online annual ‘reporting’ with regular investor communication and more integration with corporate websites will be much more commonplace.

The emergence of social media and mobile innovation has triggered a lot of media coverage, agency commentary and hype in the field of digital corporate communications and reporting. To date, however, editorial and events are mostly based on the ‘how’, seeing the new opportunities simply as channels to connect with audiences. In a world where content is king, the emphasis had to be audience interaction and engagement.

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P/E Ratio

In today’s Financial Times ‘Lex Column’ there is an article which talks about treating price/earnings (p/e) multiples as shorthand for what the market might be thinking about a business. For me, this is further evidence that our agency approach to telling the ‘whole’ story in a clear and concise way works when it comes to helping an investor make an informed decision.

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Keeping it simple

Businesses have trapped themselves in a routine when it comes to corporate reporting, providing a lot of data but offering very little in the way of digestible information or understanding. Companies that offer bold, clear, concise corporate reports can stand out and gain competitive advantage.

Explosive events like the economic crisis sometimes produce tides of change in the public mood. We are witnessing one now, running through the whole corporate sector.

It started in the public arena; one factor that has characterised the economic crisis is a total lack of comprehension among the public – baffled people just want an explanation of what seems to them like a paradox. Throughout the crisis, the plaintive cry from those experiencing the sharp bite of recession has been for someone – anyone – to explain what is happening and what is likely to happen in the future. The call is for explanations, and simple ones.

The aftermath of the economic crisis has left the reputation of corporate reporting in tatters, with investors and the markets completely exasperated. The momentum is for a move towards straightforward explanations; a clear narrative that investors, the markets and the world beyond can all clearly understand. Companies that catch the mood and start to produce bold, clear and succinct corporate reports will give themselves the chance to stand out and gain competitive advantage. At present this rarely happens because business has trapped itself in a routine.

Ditch the data
The problem is that companies have convinced themselves that they are producing ever-better communication. They have become used to providing a lot of data but, in contrast, very little digestible information. The real story is buried, and ticked boxes do not create understanding - the real task, as has become increasingly obvious over past year, is to make the stuff readable. Narrative is how you communicate; comprehensible narrative is how you gain the benefits. This can be achieved by dumping the figures online where they will be available to those who need them, and then concentrating on telling the real story in an engaging way.

Short and sweet
It doesn’t have to be a lengthy document; it can be done in less than 30 pages. It needs to be carefully thought through and then clearly articulated. It needs to start with a summary of what the Board of Directors considers the most important elements of the business. It needs to focus on performance and how and why it came about. This directors’ story should be told, in brief, and with clarity, at the time of the announcement of results.

There need to be short explanations of changes in the share price, profits (and losses), expenditure, and assets and liabilities. Create short versions of income and expenditure and cash flow statements. Concise paragraphs should explain what has happened in areas like risk management, governance, remuneration and sustainability. Further narrative should cover the business model, the main accounting policies and judgements from the financial statements. The outlook for the ensuing year should be made clear.

Following these guidelines will result in a clear, comprehensible document that makes people think, inside and outside the organisation. It will create a simple understanding which can only boost credibility and, of course, profits. A company that puts a neat and easy-to-understand corporate story into the market makes the market feel more comfortable. The benefits are enormous. The tide of change is there to be taken.

Help is at hand
Regulators and professional bodies have caught some of the spirit of this zeitgeist. The Financial Reporting Council has published two short documents that reflect the changing mood. The first is called 'Louder Than Words (In Short)' and describes principles and actions for making corporate reports less complex and more relevant. The second is called 'Rising To The Challenge' and is a review and critique of narrative reporting by UK listed companies.

The Institute of Chartered Accountants of Scotland has published a discussion document called 'Making Corporate Reports Readable – Time To Cut To The Chase' which provides arguments and examples of how to simplify reporting to investors, shareholders and other interested people. Both are available to download from the relevant websites: http://www.icas.org.uk/mcrr and http://www.frc.org.uk/publications.

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Genius of design

As all of you know, Vitsoe furniture has been part of our office environment for quite a while now. I for one have always taken for granted its adaptability so it will be interesting to see how it was designed and developed in the '50s and '60s in tonight’s documentary on BBC2 called 'Genius of Design'.

http://www.bbc.co.uk/programmes/b00slplb

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The iPad is almost here, will this also be a darling of the business world in corporate reporting?

The first real application that I’ve seen is for The Financial Times which launched its iPad version of the newspaper in the last few days. It’s really impressive.

To give you an idea, on the front page and main section pages you can simply tap the page title to bring up a cover flow style panel showing all the sections, from where one tap on a section name will take you to it. You can also tap and drag to re-arrange the order of the sections, a very nice touch. There’s a search dialogue at the top right of the front page, to help find stories/news you’re interested in. Lots of elements on the front page are tap-able. Tapping a sidebar ad brings up a full-screen image… And a single tap on any of the videos shown in the middle of the front page starts it playing straight away in place.

This device with its advanced user experience is set to impact the business world, particularly the corporate communications environment. An iPad app for the Annual Report or Sustainability Report can combine data manipulation, easy charting, multimedia, book marking and content extraction, all making the user experience instant, rewarding and really powerful.

Once the investment community experience what it can do in the consumer space, the demand will grow quickly for this being versioned for business use. Judging by the rate of sale in the US, that is not that far off!

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So, it's a hung parliament

...It just occurred to me that if you mix red, yellow and blue, you get Brown anyway.

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Debating the debate

Be careful what you wish for, you might just get it! A view through the lens of the corporate advisor.

The TV debates appear largely pushed for by David, call me Dave, Cameron. Some might say that his motivation in wanting to put his personal brand on a six hour long display, shoulder to shoulder with Gordon Brown, would have sealed his point of differentiation and drawn the voters (the investment community) in his favour. The wider voting public have never had such an extensive and close up opportunity in history to help inform and judge.

However, the reality was always that the personal brand of the Party leader (CEO) is inevitably entwined with that of the corporate brand, (party) and that of the industry sector (politics). Both of these later associations have deep-rooted issues with the public that have conspired against both main parties to allow the almost new brand (Lib Dems) a real place in the consideration set, and certainly the potential to be highly influential.

As witnessed in the banking industry, no one saw this coming. The advisors have been looking the other way, blind to the threat. As we all know in business, most circumstances develop under a unique set of factors that have characteristics requiring constant interpretation. As with the banking industry, these are interesting times where the unthinkable can and does happen!

These debates are in reality a final act of acknowledgement of what all corporate business has to deal with daily; open, transparent, forensic scrutiny beyond that of the CEO’s vision halo.

All three parties are now experiencing the acute dynamic of 24/7 opinion, gorilla marketing (the lady in Rochdale), the need to be agile and change messaging strategy in real time as well as the communication mix to take corrective action and steer through these unchartered waters, till May 6th.

This scenario amplifies the need to have real time insight and forward facing intelligence to anticipate and outmanoeuvre, to stay in control and hit the home stretch.

As with all corporations, the winner of the investment decision on May 6th will be held to account, even more so now by the voting public, having been in our living rooms or on our laptops for those six intimate hours.

As they say, the party leaders must be careful for what they wish for...

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Childish

Why do I like the new Barclaycard commercial so much? Am I alone in that? And is it because anyone who can make a financial brand look joyous at the moment is pulling off a particularly smart trick? Is it because it breaks all the rules about financial communications? Water (money) slips through hands too easily. Apparent reckless pursuit (risk never a winner for credit cards) and somewhat madcap. Or is it just a great creative idea? Flow of money made easy. Or do I just have a soft spot for anything by the Bellamy Brothers? Or is it just for the sheer silliness of it? That childish sense of fun. It’s had a huge media spend on it and prime-timed like crazy, but if you haven’t see it http://uk.youtube.com/watch?v=mQ1PeXPNCrM - it features a man in an office taking a massive waterslide home from work, paying for things en-route (en-slide). Nice track too, Let your love flow.

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Brown

If anything, the credit crunch and the ensuing financial crisis proves, in life and in the money world, that there are always winners when there are losers. It’s said that in Chinese, the word for ‘crisis’ is made up of two characters, one means ‘danger’ and the other means ‘opportunity’. Some people suggest that the current financial crisis and his handling of it has been Brown’s Falklands. True, it could be. For him personally it seems, it couldn’t have come at a better time, blurring the line between his previous domestic strategies and concurrent global financial happenings – cynics might say it’s hard to tell if his aim was to save the banks or vice-versa.

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