The government may have got cold feet over the idea of
forcing public companies to produce a full-blown operating and financial review,
but political jitters have had little impact on some plcs. Friends Provident, in
particular, has pushed the boat out on the OFR and believes that the document
will form an invaluable part of its reporting to all stakeholders in future.
As Friends Provident’s finance director and CEO-elect, Phillip Moore
(pictured), argues, if you believe that stakeholders will benefit from the OFR,
then it should be done regardless of the difficulty.
In fact, Moore argues that, while compiling a good OFR is time consuming, it
is not that difficult. “The OFR is basically information that we have internally
anyway. It is the strategic thinking and context setting that informs every
board meeting. Why shouldn’t we share this with our stakeholders?” he says.
Clearly you do not share commercially confidential information, but no one is
asking for that, he says.
Am I bothered?
Two things about OFR reporting bother Moore, though not enough to stop
Friends Provident from publishing one. The first is the idea that in an
increasingly litigious world, some investor, somewhere, will start a class
action law suite based on the OFR.
“If you share your strategic thinking with people and then circumstances
change, they have to be adult enough to realise that the best laid plans
sometimes come to grief. We need some protection, so that we can share
information without giving hostages to fortune,” he says.
UK law has no equivalent of the US safe harbour provisions, which allow a
company to make forward-looking utterances, in context, without opening
themselves to huge claims for damages.
The second thing that bothers him is the inescapable fact that when you
combine the OFR and the annual report and accounts you have a document that is
too long to be properly informative. “What we need is for the government to
introduce primary legislation that will allow companies to file their report and
accounts electronically, and put the full report on their website.
“But the document we send to shareholders and stakeholders, together with the
OFR, should strive to be no more than 60 pages long. Not many people want a
200-page brick thudding through their letter box,” he says.
So what does he think about the business review that the government is now
thinking of substituting for the OFR? “If we go back to first principles, our
desire is to communicate clearly and responsibly. We welcome any guidance, be it
from government, regulators or our stakeholders, as to the sort of information
they would like to see in our reports. If a business review moves us towards a
greater level of clarity, then that is a good thing,” he says.
If the rules change, Friends Provident will simply call the document it
currently entitles its OFR, a business review. “I hear some people saying that
the proposed business review is neither fish nor fowl, but it is, nevertheless,
a move in the right direction, beyond purely financial reporting,” he says.
David Phillips, head of corporate reporting at PricewaterhouseCoopers agrees
with Moore that opponents to the OFR – and the CBI has been less than enthused
about the idea – tend to overplay the additional workload and expense it would
In fact, he argues, PwC research shows that companies that opt for OFR
reporting tend to find that they benefit from greater market understanding of
the company’s longer term challenges and opportunities.
“We have done a lot of work on what the base information is that investors
need in order to make decisions. It turns out that what investors want is not so
much the financial outputs in the annual report and accounts, as the OFR, which
helps to explain how these financial outputs are achieved,” he says.
Piers Evelegh, creative director of Flag, a specialist accounts design
consultancy, worked with Phillip Moore on Friends Provident’s OFR report. “It
looked at what its competitors were doing and this was seen as a way of
differentiating itself in the market,” he says.
The Friends Provident OFR was well rated by the market when it appeared and
the key to its success, Evelegh says, is that it was presented in a way that
made a vast amount of information easily accessible to readers who were not
necessarily expert users of financial reports. That, in a nutshell, is what the
OFR is all about.
Anthony Harrington won the print category in the Business and Financial
Journalist Awards, presented by the Institute of Financial Accountants at its
90th birthday celebration, for his work in Financial Director and other
magazines. The winner in the TV category was Adrian Chiles of Working Lunch,
while the BBC’s Evan Davies won the radio category.
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