PwC partner speaks out over 'dreadful' annual reports

Companies have given up trying to make their annual reports readable according to PricewaterhouseCooper’s reporting chief who believes over-regulation could be killing off good reporting.

David Phillips, PwC’s senior corporate reporting partner, believes a box ticking culture has degraded some annual reports to the point where they are, “legally compliant, but, as a communication document, dreadful”.

“Reports that are produced by a compliance process or by an editorial committee, you can spot those report versus those companies who have taken a much more top down approach to it… and put some personal input and character into it,” he said. “What the investors want is just good data and, if I’m honest, financial reporting today doesn’t give them that.”

His comments come as the reporting regulator, the Financial Reporting Council (FRC), prepares to release new guidelines on narrative reporting.

In June, the FRC said it was concerned “reports no longer reflect the reality of the underlying businesses, with key messages lost in the clutter of lengthy disclosures and regulatory jargon”.

In his own report of FTSE 350 businesses released this month, Phillips found many fail to tell a “clear, credible and coherent” story. “Companies also struggle, or are understandably reticent, to provide clear information about the key dependencies in their business model,” the report states.

It also accuses some companies of paying “lip service” to sustainability reporting. The report predicts, companies will be pressured to provide evidence of their climate change measures.

Phillips said some companies’ sustainability reporting is “a bit of a shopping list” with little consideration of the affect sustainability will have on their business model.
“It is not about producing a nice global report saying what nice things we do in the community, it is about whether this business is sustainable in the long term,” he said.

“These are real business issues and they are going to affect the marketplace and consumer needs… For some companies this is a bit of a sideshow it has more to do with shareholder relations.”

Only 31% of companies aligned sustainability with their strategy according to the report ­ an increase on the previous year’s 23%.

On remuneration, the report found only 12% of companies align their remuneration to strategy and KPI.

With a renewed focus on big bonuses, Phillips believes businesses can no longer get away with just providing minimal information. “Some reports can be a bit of a data dump whereas some reports… have gone out of the way to help understand how individuals are paid,” he said.

“There are quite a few companies to whom I would go back again and say that they have generally adopted a compliance report ­ compliance with the minimum is not good enough in today’s terms.”

IN OUR VIEW

If you want a snapshot of a business, you head to its annual report. It should be as easy as possible to understand what’s happened in the last year, what might happen in the year ahead and how the business works. Simple. Cut out the jargon and the marketing guff and you’ll be doing your reader a great service.