For decades, the annual report has been the compendium of relevant and trustworthy business information. However, in a rapidly evolving world, technology is transforming business, economy and society at a pace that is unprecedented. New business models are emerging as existing ones are being disrupted, creating significant challenges to the way information is prepared and the way it is delivered to its users. Social expectations and needs, heightened by frequent scandals and public scrutiny, are creating challenges to the current corporate reporting practices.
Yet, most discussions on the future of reporting, circle around ideas for incremental and marginal improvements or focus on the increase in the rules and regulations for disclosure. The result is that the size of annual reports has ballooned with companies publishing information that may seem overly complicated, indigestible, and, to certain extent – with diminishing value.
If we have to be honest, innovation and change in corporate reporting have been slow, inconsistent and uninspiring. We see the need to forget some tired questions and to identify new horizons that bring fresh perspectives on the future of reporting. ICAEW’s Time to Decide is an essential step in this direction.
In 2017, we hosted a ground-breaking design-led event with the FRC, which for the first time considered the broader ecosystem of stakeholders, beyond shareholders and investors, and identified two key challenges for the profession:
- How do we engage and motivate young people to take an active part in discussing the future of reporting and inspire them to think as innovators?
- How might we better understand the needs of stakeholders and how can we empathise with more people to create an inclusive agenda for the future of reporting?
Young people are searching for authenticity
We believe that AuditFutures will be making an important contribution in this space. We aim to engage young professionals in critical debates, to foster more proactive and inclusive agenda. Fundamental to our success is our cross-disciplinary approach that invites external perspectives and challenges current thinking.
Last December, we hosted the first bespoke event for young ICAEW members – “Futures Salon on corporate reporting’. To animate the discussion, we invited three speakers: Reema Patel (Royal Society of the Arts), Brett Scott (journalist and author) and Rev Andrew Baughen (St James Clerkenwell).
The key message from the event was “authenticity” – as the most critical characteristic of companies and their report. By capturing the central insights from the Salon, we want to elevate the importance of authenticity in the way companies engage and communicate.
How can we establish legitimacy, restore trust and move beyond populist rhetoric?
Reema Patel leads RSA’s work on the Citizens Economic Council and before that she worked for the engagement and participation think-tank Involve. She talked about the importance of reflecting both what good engagement look like but also what terrible engagement look like. Regardless of what sector we work in, the two significant challenges according to her are undoubtedly the breakdown of trust and the dissipation of legitimacy amongst experts. Obviously, post-Brexit and Trump and the proliferation of the internet and social media challenges, these are even more important to us. Her other concern is the rise of populism as a force to influence decision-making as it locks people out of making important decisions that matter to them.
Why is this relevant to corporate reporting? Any meaningful corporate public engagement would have to establish legitimacy, restore trust, and move beyond populist rhetoric. According to Reema, effective participation should include positive loops, responsiveness built to support engagement with citizen participation. Disengagement leads to people feeling less trusting and more disconnected. Cumulatively, this leads to the systemic crisis of legitimacy and trust.
This is why there is urgency in addressing these issues, especially when stories like the Edelman’s Trust Barometer tell us that we’re not heading in the right direction. Of course, there are a number innovation initiatives, including this collaboration led by AuditFutures. RSA’s Citizen’s Economic Council is another ground-breaking project that has been modelled as an extended form of jury service. RSA argues that institutions can facilitate the random selection of groups of people to deliberate on key policy issues. Something similar has been used very effectively in Australia to support the work of local authorities. It is also widely spread in Canada.
An essential aspect of this approach is the positive feedback loop. By creating active dialogue and engagement between institutions and people. The other two outcomes of these processes are the engagement as empowerment (supporting active citizenship) and engagement as collaboration (creating solutions that a single organisation cannot achieve).
How can we change our worldview?
Rev Andrew Baughen, the vicar at St James Clerkenwell, started with a surprising question: “do you know how Christmas of 2011 changed the world?” The answer is quite prosaic and unexpected. John Lewis produced a TV advert that for the first time did not mention a product. Instead, it told a story about a boy who waits for Christmas so he can give a gift to his parents. Andrew argues that what this advert did was change the advertising forever. Indeed, we are now used to see similar adverts that are not functional (about selling products) but experiential (about telling stories). “Fundamentally, Christmas is not about shopping. But about the experience and joy of giving and receiving gifts.”
The importance of story over function is indicative of how our microcosm is shifting. This is why Andrew has launched a research project to explore what distinguishes soulless from soulful organisations. His starting point was the experience of doing an executive MBA at CASS Business School. Being in lectures and listening to lectures similar to the ones from decades ago, he had a different mindset. This worldview or metanarrative about how we see the world is about our own story, our relationship with people, our purpose, our meeting. “Worldview is the fundamental orientation of the heart. What we invest in is what our heart believes in.” This underpins our assumptions, our decisions and where we want to go as people.
Therefore, when asked about reporting, Andrew is much more interested in the ‘worldview’ of the company. What makes the company tick? What makes a company great to work for? He found that companies that have survived the past century are often companies that are started by people who have a particular ethos. Unilever was started by Lord Leverhulme who set up a model village for his employees. Similarly, a lot of the Quaker companies have stories behind them.
How do we make reporting more human, authentic and accurate?
Brett Scott wonders who would want to engage with companies and why: “People engage with an entity if they want to get something from them. Corporate reporting is mostly for investors because corporations have a specific need for them. Companies communicate with customers via advertising. This is how historically the relationship had developed. For the general public, it is about news releases and press releases. This is how a company speaks to the general public. “
Brett sees current corporate reporting to emphasise the embedded structure of the economic models for maximising profit, relative to risk. The existentialist in Brett considers this as pervasive inauthenticity of companies. “Corporate reporting, PR and adverts are constantly wrapped in lies. Of course, companies try to make all this more human, but people notice when something is not genuine.”
To innovate the report, the focus should be on the content, not on the medium. You could do quite interesting innovations around the format and way of delivery of reports, but essentially it is the same. For Brett, the more important question is about the content, and he sees this answering the question “who do you care about?” We talked about companies telling stories but what is the incentive for a company to do that? What does the entity care about? How do you sell this in the boardroom?
From an immediate practical perspective, the worst aspect of reporting today is that it is aggregated. Brett finds this the most misleading and obfuscating for global entities and large corporates – to create a single snapshot. Of course, it is often done because it is easier, but it is important for the profession to reflect on its leading role here.
The other element is the style of reporting, which Brett describes as wrapped with pervasive inauthenticity: “There is always that attempt to show a face, but most corporate stories are about institutions, trends. They are never about what does it mean to work for a company. Most communication is about what a product can do or how it makes you feel. But it is never about how it does it. One of the main reasons for alienation is that we don’t know how things work.”
The profit motive for most corporations will always bring the tension between these private goals and public goals. Companies often try to create a false story about how their private goal aligns with the public goal. Brett believes this is the most profound reason for inauthenticity. It is further exacerbated by the scale of modern corporations, as it is incredibly hard for large-scale bureaucratic entities to have any form of humanity or authenticity. Structure could further increase the disconnect with human interactions.
Quotes and reflections from the discussion
The three short presentations sparked fascinating discussion amongst the young professionals. Here are some of the key points and reflections:
- From our generation’s perspective, we appreciate transparency and authenticity. Even if it is unexpectedly. Ryanair is not pretending to care about its customers but offers to take them from A to B for £19.99. British Airways, pretends to be something that it is not. We do get frustrated by unauthentic companies, and our aspiration as professionals is to support genuine transparency.
- We don’t see transparency and more frequent reporting as always good: what matters is the quality of the information and how that data is then used. Quarterly reporting in larger companies have unintended consequences: high focus on turnover and profits in the short term rather than sustainable investment and support of the wider community and business eco-system.
- How many companies are reminded of where they started? I have been preparing financial reports for about five years now for a 40-year old business. The founding story of the organisation has never appeared in my work.
- “I trained as an auditor of financial services and 95% of my clients could not give me a straight answer on the question of how they make money. There is always some rhetoric about purpose but without a clear connection between where the value is added and how the company makes money.”
- “We talked a lot about whether there could be a motive for companies to become more ‘soulful’ in improving society, or whether that would only ever be done as a means to an end, i.e. being perceived as soulful would lead to increased sales, higher profits and thus satisfy shareholders. I was wondering whether if we assume it’s the latter, corporate reporting could have a role to play in ‘nudging’ companies, by asking them to report on a broader range of measures. E.g. carbon emissions, gender pay gaps, pay disparity between CEO / average worker / lowest paid worker, etc.
- By making companies disclose such measures the salience that is attached to the information may move them to act on it, to cast them in a more favourable light relative to their competitors and the broader market. This would also enable investors who are looking to be socially responsible to direct their funds towards better-performing companies in these areas.
- What characteristics, behaviours and attributes do companies, institutions and those associated need to have to be considered trustworthy? A key one that seemed to come out in the discussion was that their communication and presentation to the general public and the market were authentic and not insincere, i.e. the face presented was not a mask disconnected to the true nature and applied values of the company. Otherwise, even if a business is truthful in the reporting of actual data, that reporting can often be viewed as deceptive, and so the call for transparency becomes louder.
- “We are disillusioned with the homo-economics model of the rational individuals who want to maximise their utility. This abstract model assumes that we don’t care about why a company exists, how it operates, how its stakeholders feel. We do care about the origins of the products and the stories about it. This is fundamental to our generation.”
- “We are seeing this shift in young people who apply for jobs. Today, more and more often, applicants ask at the job interview “what would your company do for me?”. Twenty or even ten years ago, a question like that would be unthinkable.”
- “The key takeaway for me is that we need to go back to basics and find what people want us to report.”
- “Only someone who is authentic could deserve our trust. This is something that can truly inspire and engage our generation.”
More on the topic
Getting real about the future of reporting
Brett Scott challenges the profession to step outside its comfort zone.
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More than reporting
Rev Andrew Baughen’s keynote at the 2017 Innovation Summit on the Future of Reporting
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Innovation Summit:
Future of Reporting
On 11 July 2017, we hosted an innovation summit on the future of reporting with the FRC
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