20 February 2019
Governance is a crucial, if under-appreciated, part of any business’s success. No matter the size, the scope, the product or the service, the role of governance is really at the backbone of what makes your company tick. Why? Because the idea of governance speaks to the core of how your business functions. Regardless of the sales, negotiations, profits or pricing, the company’s relationship to governance is really a mirror for how well your organization is run.
Thus, it is a key element in your company’s investment story. Partners, employees, investors and potential clients all want to know they are spending their time, energy and resources on an organization that values sound business practices and that creates an ethical corporate culture. Forward-thinking governance can be a powerful tool for change and a distinct differentiating factor between you and your competition.
Given the currency good governance carries within the business environment, one might expect it to be a larger part of the overall company story, highlighted within such communications as the annual report. But, when we scan these reports, more often than not, a company’s relationship to governance either comes off as an afterthought or it is lumped in boilerplate fashion with its compliance reports.
In a recent post, we brought your attention to a study presented by Report Leadership that challenged this state of affairs. Report Leadership is a multi-stakeholder entity whose aim is to challenge the current thinking and processes surrounding corporate reporting. The contributors of this particular study hail from the Chartered Institute of Management Accountants (CIMA), PricewaterhouseCoopers LLP and Radley Yeldar. In their study, Report Leadership urges companies to tell their company’s governance story through a process called narrative reporting: “As companies begin to explore ways to bring to life their governance procedures and improve their corporate governance reporting, they will need to consider the potential interaction, overlap and inconsistencies that might arise with other key area[s] of corporate reporting.”
Four Places to Communicate Your Corporate Governance Reporting Agenda
In effect, the Report Leadership committee suggests integrating details of governance positions into the fabric of an organization’s annual report. To that end, here are four key areas where your organization’s annual reports can highlight its efforts at better governance:
1) Message From the Chairman
Corporate reporting for UK companies typically includes a message from the chairman of the company; in the United States, we might see a note from the president or the CEO. Either way, this is an opportunity for a voice from the top to offer their direct, personal account of the year’s progress within the company. If this message does not contain succinct demonstrations of the organization’s commitment to good governance, it should.
Chairmen or CEOs can use this chance to delineate their view of good governance and explain the effects it has on company strategy. Included in this can be a description of board culture, and ways in which the company’s policies and procedures embody corporate values. As they begin to forecast the year ahead, they can demonstrate how governance affects such actions as acquisitions and disposals, succession planning, risk appetite and board evaluation.
2) The Composition of the Board
An investor can learn a lot about a company based on who it elects to its Board. An entirely homogenous board may send the signal that this company is reluctant to engage in productive criticism or entertain outside perspectives. Good governance practices would suggest recruiting board members who offer you the best experience from a wide variety of backgrounds. Ideally, you want to show how your board is balanced and able to work together to guide the company. So, how can you communicate that to someone reading through your report?
Report Leadership suggests focusing on the relevant skills of each board member, rather than relying on details of their past careers. Their positions and connections with particular firms may tell potential investors something of their job history, but it does little to explain the exact talents and expertise each board member brings to your organization. Board members’ biographies can first foreground their strengths and specific experience, and then relate their relevant industry connections. By emphasizing each member’s contribution to the whole, readers can come to understand the role of teamwork and the array of talents available to the company.
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3) Accomplishments of the Board
Effective board committees are able to guide their organizations through responsible oversight. That’s an attractive feature for potential stakeholders, but trying to relay that story is tough. Oftentimes, what could be useful information, instead turns into a list of responsibilities. But what if you took a hard look at the work your Board has done over the past year and made a timeline, which could show how your company’s governing practices interacted with key corporate events. You might also include a graphic that breaks down how the Board spent its time this year, allocating a percentage to each major accomplishment or objective.
4) Board Evaluations
More than ever before, stakeholders are asking tough questions of their Boards and demanding answers. They want to know that the Board is truly contributing to the lasting success of the company, and are taking long hard looks at how remuneration packages align with corporate performance. In order to assure stakeholders of your company’s good standing, you need to impress upon them how the board works to candidly assess its effectiveness, and how those assessments deal with risk and reward.
Within an annual report, you should try to convey the process of board evaluations, what the findings and actions were in relation to the previous year, and how those findings are being addressed. Articulate the process of board committee evaluations and give examples of projects that foreground board oversight.
Toward a More Holistic Understanding
Governance can be a challenging subject. Because so much of it can be tied up in the shifting winds of regulation and legislation, the goals of good governance can seem like a prize that is forever just out of reach. But by communicating your efforts to your public through your annual report and foregrounding all the ways your company strives for better governance strategy, you can create a bond of trust between your organization, its current employees and all of its future partners. If you have further questions about how you might improve your governance reporting, contact a helpful Blueprint representative today.