EY analysed 100 annual reports from FTSE 350 companies and found only ‘fractional’ improvements have been made in the quality of some key disclosures.
In the third edition of EY’s annual review, 59% of the FTSE 350 companies analysed had clearly articulated how the company makes money in their business model, just a 1% improvement from last year. Only 12% made comprehensive links between their business model, strategy, key performance indicators, risks, and remuneration, which compares to 9% last year.
Mala Shah-Coulon, executive director in EY’s corporate governance team said: “Since the introduction of the Strategic Report and Directors’ Remuneration Reports it seems the pace of improvement in the quality and depth of disclosures is slowing. The limited improvement is disappointing, however, there were some encouraging new disclosures in preparing for potential business model disruption and cyber-security risks.”
EY’s analysis revealed that the average FTSE 350 annual report is now over 181 pages long – an increase of just over 8% from 2014. In the report, the majority of companies 74% chose a viability period of just three years, compared to 5% who chose four years and 21% who chose five years. EY highlights the improvement for viability statements, a new requirement of the 2014 Corporate Governance Code.
Over 97% of the companies analysed mentioned culture in their annual report, as a brief statement without explaining the link to strategy or the business model. Only 10% included culture as part of the strategy or business model, and only 9% of reports provided an explanation of how culture is measured.
Hywel Ball, EY’s managing partner for assurance in the UK & Ireland, comments: “Many stakeholders, investors and regulators recognise that culture is fundamental to a company’s performance, risk management, and business value. Yet culture remains largely absent from most corporate reports.”
Shah-Coulon concluded: “Compared to recent years, there aren’t substantial new reporting requirements for their 2016 annual reports. In my view this is an opportunity for companies to reflect upon and improve. In an era of change and uncertainty, particularly with digital advancements, Brexit and governance, companies need to evolve and adapt.”
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