3 minute read 2 Oct 2018
Burst of coloured powder

How businesses can use their Annual Report to demonstrate purpose and create value

By

Ken Williamson

EY UK&I Professional Practice Partner and Partner in Corporate Governance

Passionate about governance and audit which are critical to trust in business and a renewed focus on social purpose. Wine and exercise enthusiast - a perfect combination.

3 minute read 2 Oct 2018

With annual reporting in the spotlight, our fifth annual review of FTSE 350 ARAs helps preparers understand current practice and anticipate reporting changes.

The report’s focus areas are influenced by some topical debates which have raised questions about business’ role in society:

  • Purpose and long-term value
  • Stakeholder engagement and social impact reporting
  • Chair tenure, diversity, culture and remuneration
  • Audit committee reporting
  • Looking ahead.

Listen to our webcast on demand , to hear EY’s Corporate Governance team discuss the key findings, and send them any questions or feedback.

Practical features

The report has a number of practical features, including:

  • an updated ‘acid test’ covering the key questions a reader should be able to answer after reading each section of an ARA
  • interviews with the Financial Reporting Lab, the UK Shareholders’ Association, Invesco Perpetual, Old Mutual Global Investors and Aviva
  • case studies highlighting companies with leading practice reporting in certain areas.

Poll results

Following the report’s publication our webcast discussed the content and provided preparers with practical ideas for how to improve their next annual reports.

The webcast was attended by participants from FTSE 350 companies as well as a number of other significant UK and international listed and private entities, investors and regulators.

Our live opinion polls gained an understanding of participant views. Here are some highlights:

Levels of ambition on annual reporting?

Annual reports are coming under scrutiny as many have started to question its ongoing relevance in a digital world, so we decided to ask preparers what approach they take to annual reporting. While companies we speak to often mention lack of engagement from investors on the annual report, investors we speak to still cite its usefulness as a comprehensive source of information.

What is your company’s philosophy on annual reporting?

A. We aim to be best in class

B. We aim to be middle of the pack

C. We do the minimum necessary to comply with requirements

D. Don’t know

Ar in 2017-18 poll philosophy

Getting ready for change?

Given the extent of new reporting requirements brought in by the 2018 UK Corporate Governance Code and related secondary legislation, we decided to ask preparers how much they planned to adopt early in their next annual report.

Given new requirements in the Code and related secondary legislation applicable from 1 Jan 19, to what extent do you plan to adopt these changes in your next annual report?

A. We plan to fully comply early

B. To a significant extent

C. To a limited extent

D. Not at all

Ar-in 2017-18 poll to what extent

Plans for employee engagement?

The 2018 UK Corporate Governance Code asks companies to explain what arrangements they have in place for employee engagement. We asked participants which method their companies are planning to adopt.

Which employee mechanism outlined in the 2018 Corporate Governance Code is your board considering adopting (or already using)?

A. Director appointed from the workforce

B. Formal workforce advisory panel

C. Designated non-executive director

D. Alternative arrangement

Ar in 2017-18 poll which employee mechanism

Summary

Our key findings show that many reporters have improved disclosures on stakeholder engagement and impacts, but most are still only at the beginning of a journey towards reporting that articulates these engagements and impacts in line with a clear long-term value creation narrative.

There are many challenges, and no one right approach – but also significant opportunities for increased investor and stakeholder engagement.

About this article

By

Ken Williamson

EY UK&I Professional Practice Partner and Partner in Corporate Governance

Passionate about governance and audit which are critical to trust in business and a renewed focus on social purpose. Wine and exercise enthusiast - a perfect combination.