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Exactly how much information should companies disclose to shareholders in annual reports? According to The ValueReporting Revolution, the more you disclose, the more you stand to gain ...

Some companies have already heeded the trumpet’s call and joined the ranks of the ValueReporting revolution. Their senior executives have seen that better disclosure means better business – for them, their shareholders and stakeholders too.

The task of determining what information has true relevance to value and how best to present it is daunting. And despite all its surrounding hype and hoopla, the internet is still in its infancy. But thanks, to the enlightened revolutionaries, we can report on a few examples of better disclosure practices.

The simple ValueReporting disclosure model serves as a starting point for companies to organise the content portion of their disclosure process.

It consists of four elements.

– Market overview: the company’s external environment

– Value strategy: the company’s competitive position and how it intends to create value in the context of its external environment

– Managing for value: the company’s financial targets, how well it’s meeting them, and the governance and management structures it has in place to deliver on the value strategy

– Value platform: underlying value drivers for delivering on the financial performance measures specified in managing for value, and how well the company manages them.

Well-managed companies formulate their strategies in the context of their explicit views of the markets in which they compete. They take into account competitors, assumptions about macroeconomic and industry growth, views on the regulatory environment and perceptions about technologies.

Because so little of this kind of information has proprietary value, managers should not hesitate to report it, accompanied of course by the proper disclaimers regarding ‘forward-looking information’. Investors find this information useful for formulating opinions about whether management has a realistic view of the competitive environment, for example.

Examples of companies reporting useful market overview information include Volvo ( and Noranda ( Noranda, the international metals and mining company, shows the impact on after-tax earnings of a 10% change in the price of metals, for instance.

Most investors have an interest in management strategy for creating shareholder value. Managers who make explicit commitments in terms of value strategy and then deliver on them, can gain and sustain a great deal of credibility.

Companies should provide strategy descriptions at corporate level and for major business units. But frequently, they provide only a glossy description of the former and little of the latter. Diversified firms also often miss another element in the value strategy – explicit explanations of the synergies they say arise from the whole of the enterprise being greater than the sum of its parts.

The Bank of Montreal ( is a good example of how a company can describe corporate strategy and its specific targets. In its annual report, the bank describes its overall corporate strategy as well as specific strategies for its major business units.

And Royal Dutch Shell ( serves as a notable exception to the generally poor state of corporate disclosure on organisation and governance.

The company’s website and its annual social responsibility report explain how it intends to achieve its commitment to sustainable development.

Managing for value calls on companies to report information on the financial measures they believe correlate with shareholder value, particularly with respect to competitors. US food equipment manufacturer Manitowoc ( does a good job of this.

The Bank of Montreal reports its total shareholder return targets and actual performance benchmarked against both a Canadian and a North American peer group.

On the whole, when managers don’t report on the first three elements of the ValueReporting disclosure model it is because they choose not to.

Even though they have most of the relevant information and use it for internal decisionmaking, they assume the risks and costs of disclosure will exceed benefits. As their views change – and they will – managers should have little technical difficulty reporting more information on these elements.

On intellectual capital, Danish company Coloplas includes data on number of patent applications; patent rights held; share of new products in total turnover; complaints; and overall customer satisfaction.

On customers, Westpac, an Australian bank (, reports: number of priority customers; percentage of customers buying one to four products and that the 40% of Australian customers who buy only one product could add an additional $500m (#181m) in revenue if they bought one more.

Better disclosure by itself is not enough. Performance does matter. But it is through better disclosure a company’s performance, and its stock price, can be fully appreciated.

This feature is an edited extract from The Value Reporting Revolution: Moving Beyond the Earnings Game by PwC partners Robert Herz, Mary Keegan, David Phillips and consultant Robert Eccles. Published by John Wiley, 2001, priced #20.95.

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