CICA’s Corporate Reporting research documents highly valuable to IROs
Last week our CEO, Darrell Heaps, and I presented to a study group formed through an initiative of the Canadian Institute of Chartered Accountants (CICA) Research Studies Department. Comprised primarily of volunteers, this panel of experienced professionals research and provide guidance for comprehensive and integrated corporate reporting in order to promote effective communication.
By reading their reports and following their guidance, any IRO in North America can improve the standards of their company’s stakeholder communications.
To familiarize you more with their work, I have provided an overview of their most recent study, Corporate Reporting to Stakeholders.
Many of you may be familiar with the CICA’s annual Corporate Reporting Awards (CRA) – a program that honours excellence in financial reporting, corporate governance disclosure, electronic disclosure and sustainable development reporting. This high profile event is now in its 57th year. (Darrell and I have volunteered as panel judges in the Electronic Disclosure category of the CRA for 5+ years and through this experience; have come to highly respect their work).
The CICA’s Research Studies Department examines all aspects of corporate reporting, and document their findings in detailed, thoughtful publications. (For a list of publications relevant to this topic, see Performance Reporting).
The purpose of our presentation to the group was to provide input and spur further discussion regarding the implication of Web 2.0 (social media) on corporate reporting for their upcoming research publication, Using the Internet for Corporate Reporting (a first draft is expected to be completed by Fall ’09).
Our presentation turned into more of a conversation as we discussed the growth of social media in investor relations, the factors driving this growth, the various ways that issuers currently use social media to expand their reach and ‘participate in the conversation’, the ways in which stakeholders are consuming information online and our thoughts on future trends. (We’ll cover much of this in an upcoming webinar on social media in investor relations, so drop us a line sherylj@q4wbsystems.com if you’d like to attend).
The group was so engaged in their work that I decided to reread their 2008 publication Corporate Reporting to Stakeholders and highlight a few things. I encourage you to check it out.
The document examines practices and important trends in corporate reporting by looking at 125 companies across a number of years and considers various reporting formats, including corporate/IR websites.
It begins by examining the purposes of reporting, the various audiences, their information requirements and the priority of this information.
The report identifies and defines all required content types that comprise each information category (e.g. Corporate Overview). It documents the percentage of the companies studied who provided this specific content. It references and quotes existing research relevant to the topic. It then provides the study group’s deliberations and conclusions on the priority of content types within each category, and also lists specific examples of companies who exemplified the specific requirements in their reporting. Appendices for each category provide guidance for those responsible for corporate reporting and include a series of questions that “merit consideration if corporate reporting is to more effectively meet the information needs of investors and other stakeholders”.
In my mind, this format gives the IRO everything they need as a benchmark for their own improvements.
I have listed the various categories here and have pulled out a comment for each to provide a flavour for the document, but in no way does this represent a complete summary of the information included in the report.
- Corporate Overview – the areas where companies scored lowest were in providing information on company ownership and control as well as management committees.
- Social Responsibility – defined as “measuring, disclosing and being accountable for organizational economic, environmental and social impacts”. Although increasingly relevant to stakeholders, there are no standards for reporting in this area although “New global reporting standards are being developed to provide assurance on matters such as financial implications of climate change.” Scores indicated that many companies were still not reporting on social or environmental responsibilities.
- Review of Operations – interesting that only 66% of companies provided information on competitive conditions in their market or industry while only 12% provided a ‘response to change’ – information on how the company has responded or plans to respond to changes in the operating environment and external factors.
- Financial Summary & Analysis – the majority of companies included the required content types for this category with scores being in the mid to high 90s. Analysis of cash flow and historical summary were the areas where companies fell short.
- Supplementary Information – fewer than 46% of companies provided a glossary of terms even though it was considered important to “facilitate the assessment and interpretation of an organization’s activities”.
Additional topics included:
- Enhancing Corporate Reporting – moving beyond the numbers and dense, jargon ridden text. This area included a number of findings and recommendations including:
o Readability – most corporate reports did not include enough white space, photos, illustrations, graphs and charts.
o Delivering Key Messages – reports need to maintain a narrative thread to provide investors with a clear linkage from markets, to strategy to key performance indicators, to future goals.
o Communicating Effectively – must be mindful of all audiences, recognizing the various levels of financial literacy, diverse interests and disparate needs. The first four pages of the report continue to be key – “many casual readers do not look beyond this point and even sophisticated analysts need a reason to read on”. - Summary Corporate Reporting – Information overload is a big problem in corporate reporting. Research referenced in the report indicates that “Decision-making performance can be impaired by heavy data loads”. Consequently companies need to access not only the information requirements of each user group/audience, but also the level at which you need to address each piece of information. Paul-Emile Roy, a principal in the Research Studies Department, said that communicators need to evaluate whether a piece of information, “Simply requires ‘commentary’ – 1 or 2 sentences; an ‘explanation’ or a detailed ‘analysis?”. A seven-step process was provided to address information overload. The group concluded that the three most important criteria for Summary Reporting. In order of priority these were:
1. President/CEO letter
2. Financial and operating objectives
3. Performance compared to objectives
- Corporate Reporting on the Internet – In an analysis of corporate investor websites, 90% of surveyed companies did not include more than 8 of the 24 essential information items. Five essential items were not included at all. This led the group to conclude that the majority of companies use the corporate website only as a library to store company reports.
The 202-page report is filled with interesting observations and recommendations and is available as a free PDF download or $47.50 for a hard copy. I highly recommend this report and suggest that you keep the CICA and its publications on your radar screen.
The study group on Corporate Reporting to Stakeholders has committed to three remaining reports that will include:
- Using the Internet for Corporate Reporting – the corporate/IR website is now recognized as the primary source of investor information. As the reach, immediacy and speed of the Internet continues to grow – along with the variety of online formats and applications, a detailed study covering corporate reporting on the Internet will be a welcome resource. A draft of the study is expected this fall.
- Corporate Sustainability Reporting – I found the group’s perspective on sustainability a telling sign of how far we’ve come in this area. “We see corporate sustainability as a key driver in the health of an organization and an important aspect of a company’s strategy. It sits at the centre of how a company conducts business”. As most companies use the website for reporting on sustainability matters, there is quite a bit of overlap between this topic and Using the Internet for Corporate Reporting. But the group will be separating these two topics as much as possible to isolate specific recommendations. It is expected that a draft of this report will be available in the spring of 2010.
- Governance Disclosures – again overlap exists between this topic and the previous two. Governance is clearly tied to sustainability. The group has not determined a release date for this publication.
IROs would be well advised to explore the work of the CICA and its research department. Their in-depth analysis conducted by IR professionals and industry experts and summarized in low-cost reports offers a tremendous value to companies looking to improve their corporate reporting to stakeholders.
Related posts:
- CICA 2008 Corporate Reporting Awards – Winners
- CICA 2009 CORPORATE REPORTING AWARDS – WINNERS
- Trends and Best Practices in Online Communications and Social Media in Corporate IR
- Q4 to Sponsor CICA Reporting Awards
- Legal, Social Networking and Financial Expertise Help IROs Stay on Top of Game
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