But there is also a growing consensus that the traditional model of corporate reporting is failing to deliver information the market needs – leading to share price volatility, unsustainable corporate valuations and over-reliance on market gossip. Isn’t it time to rebuild the model?
Traditional reports no longer satisfy investors’ needs because historical earnings data gives an incomplete picture of the sustainability of corporate performance or future growth. In contrast, corporate valuations are influenced by factors such as market and strategic positioning, brand values, employee skills and innovation. PwC’s ValueReporting model seeks to fill the information gap and help realise value by encouraging corporate reporting in four key areas.
Firstly, companies review their market, competitive positioning and trends.
Secondly, they outline their value strategy and established targets. Thirdly, managing for value explains how the company will deliver its value strategy, including key milestones, risks and the cost of capital. Finally, the company reports measures of corporate strength in areas such as innovation, brands, the supply chain, environmental and social achievements.
This model is based on the insight that greater transparency in reporting performance holds the key to more accurate market valuations. Research indicates such increased transparency enhances management credibility in the eyes of investors, so the company attracts more long-term investors, share price volatility decreases and finally, share values are enhanced.
Such open reporting improves supplier partnerships, customer loyalty and recruitment results, creating a virtuous circle to support business performance.
Delivering such a reporting model requires corporate boldness, collaboration and the reassessment of all roles. For the accounting profession this will demand new skills and a return to the pioneering role it held in the middle of the last century. For companies that make this step, the prize is the realisation of value in the eyes of investors and society at large.
- By Rodger Hughes, head of assurance and business advisory services at PwC.