AdSlot 1 (Leaderboard)

Corporate governance: More or less

Robert Bruce

It is one of those grouses at the heart of corporate governance. I was
talking to a finance director the other day about his timetable for producing
all the different parts of the financial reporting package. He was complaining
about all the different initiatives, regulations, business reviews, narrative
reporting and so on. “Everything was intended to be about better reporting,” he
said. “But instead it has ended up as just more reporting.”

You can sympathise. I sat in at a private seminar on the forthcoming
reporting season the other day and the issues discussed and the gripes aired
gave you a vivid picture of precisely that view: more has meant less. And as a
result less is possible.

Some talked of issues which you and I might find trivial, but which are
serious when it comes to publication timetables for the financial reporting and
corporate governance documents. They had one simple problem. The chairman
couldn’t see what all the fuss was about. It had been decided to produce new
photographs of the board members for the annual report. Everyone else had
submitted to this quite happily. But the chairman was forever cancelling the
appointment and was adopting a familiar this-is-a-trivial-matter,
could-you-stop-bothering-me-with-it approach. Deadlines were being broken right
down the timetable. Printers were poised to print. The chairman still couldn’t
see what all the fuss was about. Outsiders imagine that things run smoothly and
that frivolous delays are unlikely to occur. But the photographing of the
chairman can become a ridiculously lengthy saga.

There were other dispiriting issues to report. One member of a team producing
the annual report had spent weeks trying to pull something together which might
provide more useful information than they had previously produced for investors.
At one of the final meetings one of the directors had turned to him and said:
“What’s wrong with boilerplate?” It was another example of the difficulties

And there were other frustrations. Another company, with subsidiaries across
the world, found that the auditors in some of the countries in which it operated
hadn’t agreed on some vital interpretations. The reporting process ground to a
halt while technical partners had a cross-border squabble. The result was a
revision of the figures just days before the sign-off.

Another complaint was that board members frequently couldn’t care less about
the annual report. Put bluntly, it didn’t matter to their remuneration. The
incentives were all linked to share price. If publication of all this extra
material was not likely to move the market then why bother, was the general

A consultant would tell you that what is required is buy-in. But it is
becoming increasingly difficult to get that. There is a weariness at board level
with the whole process. They have seen issues like international financial
reporting standards, Sarbanes-Oxley and the saga of operating and financial
reviews and business reviews take up management time and resource and they can’t
see what value has been added as a result. They know it is regulation and that
it is unavoidable, but that doesn’t mean they will be sympathetic to the
financial staff who have pulled it all together.

It would seem that corporate UK is suffering from governance and financial
reporting indigestion. This does not augur well for the future. After all, they
are going to have to prepare themselves for further change shortly when the
method of delivery of the annual report and accounts changes. The Department of
Trade and Industry’s decision to allow companies to, in effect, abandon the
traditional package and offer an online version will provide even more

Boards of directors now have to think through what they want to do. They
could invest in technology and produce an online version of the narrative and
the figures which would leave investors and analysts both amazed and
enlightened. They could simply transfer the sort of thing they already do in
print onto the screen. They could simply reduce it to something akin to the old
US 10-K document. It would simply become a mass of figures. It would be a
playground for nerds, but of no real value to anyone else.

The difference will be made by the people who prepare the information and
their ability to be persuasive at board level. Finance directors will, once
again, be the crucial bridge in this process. They need to show why greater
disclosure of useful and interesting information adds to the long-term value of
the company. And they need to show how a creative use of online delivery will

The real challenge is at board level. It is there that the idea that life
becomes easier and more successful if these issues are dealt with in a positive
way has to take root. They need to motivate the people who are doing the work of
pulling all the financial and narrative reporting together. They need to fight
the fatigue and regulatory overload. And they need to have their photographs
taken when they are asked, courteously, to do so.

Related reading