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Editor’s Letter: A Game of Tomes

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HBO’s blockbuster fantasy series A Game of Thrones returned last month with the usual hype and fanfare. And don’t worry no spoilers here, I must admit to having not had time to watch the new episodes. Yet the return of Tyrion Lannister, Arya Stark and The Mother of Dragons to our screens reminded me of George RR Martin’s epic seven book (and yet unfinished) literary series on which the show is based.

Thousands of pages long, made up of a series of disconnected issues, which leave the reader unable to assess the implications of the matters raised as a coherent whole; I could be talking about company reporting as much as the work of Martin.

Annual reports have increased 3% in size over the last five years, yet continue to struggle to articulate the most relevant information to investors. The financials may tell you how much money the company made, but not necessarily how it makes money. And increasingly how a company makes money is associated with intangible value drivers, for which current financial reporting and key performance indicators do not adequately reflect.

The advent of non-financial reporting is effecting a change in company behaviour, yet many companies still fail to explain clearly the linkages between their business model and strategy. Indeed, according to analysis of 100 annual reports in the FTSE 350 undertaken by EY, only 9% included a narrative that threads everything together from a company’s strategy and key performance indicators, to the principal risks and remuneration of its board directors.

Investors complain of the fact that management is too focused on driving short term value, and point to the historical, earnings related nature of reporting. But they too must hold some blame for this short termism. Quarterly reports and interim management statements remain a mainstay of UK plc despite the requirement being scrapped by government. Investor demand is seen as a key reason for this.

Increased disclosure and continued appetite for interim financials will only provide clarity for investors if they are able, like the way HBO has chopped Martin’s gargantuan tome’s down to size, to effectively help business edit out the irrelevant clutter.

Richard Crump is editor of Financial Director

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