Better Business reporting is needed to support better investment decision making, according to a KPMG Survey.
The survey questions whether the historical focus of today’s annual reports is driving short term decision making by both investors and company management. It also reveals a disconnect between the key drivers of business value and the content of reports.
For example, While over half of audit committees consider customer focus to be one of their top three drivers of business value, only 7 percent of reports surveyed provided performance data on customer focus or satisfaction.
Majority (85 percent) of reports surveyed did not identify brand and reputation as a key risk; while the average report in the survey was 165 pages long, it only provided an average of 4 operating performance measures; 21 percent of reports surveyed did not provide any operating measures of performance.
According to KPMG, reports need to take a longer term view and provide a broader perspective to help investors take their assessments beyond current year earnings.
“Management teams are telling KPMG member firms that they are frustrated by apparent investor short-termism," says Larry Bradley, Global Head of Audit at KPMG International. "I believe that better business reporting could provide investors with the objective information they need to take a longer term view.”
KPMG International makes four suggestions to help reports align more closely with investor decision making:
1. Align performance measures with the drivers of shareholder value
Few companies report performance measures over the most commonly identified drivers of business value
2. Recognize that the financials are only the start of the story
Operating performance measures can provide leading indicators of business prospects in areas that historic financial metrics cannot
3. Join up reporting content
Many reports leave unanswered questions by raising business issues and opportunities without explaining the progress made in managing them
4. Refocus reporting culture
In addition to meeting disclosure obligations, companies also need to ensure that they take a more business-centric approach, and that they understand the information their audience will need for the matters raised in their report.
“Businesses that are investing in their long term future should have a strong incentive to make this investment more visible," concludes Matt Chapman, KPMG in the UK’s Better Business Reporting leader, and author of the survey. "We need to recognize that the financials are only the start of the story, and better align performance measures with the drivers of shareholder value to support this.”