CIMA will tell the FDs that the cycle of ‘short-termism’ and aggressive earnings must be broken and the gap between the information companies report and details investors want has to be closed if shareholder distrust is to be overcome.
A report, Business Transparency in the Post-Enron world, exploring the options for restoring trust in capital markets has been supplied to 1,000 the FDs. In the report they will be told ‘the current system of business reporting cannot meet all the needs of the modern economy’. Improved transparency, the report concludes, is the key to improvement.’
Stathis Gould, head of technical issues at CIMA and one of the report’s authors, said: ‘Chief executive officers, finance directors and auditors must understand the quality of reporting does not just affect their individual operations but capital markets as a whole. If confidence in the market is low, the cost of capital will increase sharply. The only way to restore confidence is through high quality reporting by listed companies.’
Gould said the current system falls short of meeting the demands of today’s economy and that investors need ‘forward-looking’ information. The report talks of a ‘virtuous circle’ in which increased transparency leads to more investor confidence.
Charles Tilly CIMA chief executive, said: ‘Ensuring transparency should be the number one aim of companies. Failure to do so will damage investor trust.’
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