There is some good news and some not so good news in the state of Australian corporate reporting.
KPMG International has just released a study of business reporting by 270 companies in 16 countries, including 15 in Australia, and the results are enlightening.
The good news is that our companies have ‘cut the clutter’ in their annual reports more successfully than most. Regulators around the world in recent years have made concerted efforts to encourage companies to try and reduce some of the verbiage which has led to annual reports getting longer and less useful for most readers.
Australian companies have managed to pare their annual reports back to the point where the average report is now 155 pages long here, compared to a global average of 204 pages.
This is an important achievement by Australian companies as it means their reports are clearer and concise – and hence of more value to stakeholders. In terms purely of the financial statements, globally these vary between 60-140 pages and again Australia comes in at the shorter end, an average of 70 pages.
One area of corporate reporting where Australian companies have not been able to reduce the page count however, is their remuneration reports, which take up a bigger proportion of annual reports’ volume here (28 percent) than in most other countries (19 percent). This is an area that needs attention.
But the real downside of the survey is that Australian companies have performed relatively badly on reporting some of the key information increasingly required by investors:
- Only 5 percent of Australian annual reports are devoted to addressing business strategy, compared to 14 percent globally
- No Australian reports in the survey revealed how brand or market share was developing whereas 15 percent of overseas companies did
- Only 14 percent of the Australian companies surveyed provided information on their longer-term business strategy (56 percent globally)
- No Australian reports included lead indicators on staff productivity, or labour relations outcomes (global 10 percent)
On one area, customer focus, Australia does relatively better, with 50% including this as a key business objective. Globally only 25 percent do, a finding which we find quite alarming.
It is a matter for concern that Australian companies reporting is trailing international best practice on these issues – we don’t perform well compared with global peers in explaining longer-term drivers of value such as use of non-financial resources. In particular, disclosures in respect of R&D, workforce efficiency, products and brand need to be improved.
Disclosures on operating performance and its link to strategy also lag overseas companies. Discussions of strategy tend to be patchy and relatively short-term in nature, and it appears there is not enough detail on the key aspects of the business model for investors to take a view of the company’s longer-term prospects. All of these areas need to be addressed.
Interestingly, the report showed that there is now some evidence of interest among Australian investors in the move towards integrated reporting. Super funds such as VicSuper have recently called for these, with GE and, locally, NAB now publicly extolling the benefits of integrated reporting.
Companies which are embracing better business reporting are connecting their business model strategies and KPIs more directly. Some empirical evidence is beginning to emerge of the benefits of integrated reports in relation to allocation of capital.
The ‘cutting the clutter’ initiative at which companies have seemingly excelled is valuable in its own right. But it also paves the way for companies to take that next step towards a bigger overhaul of corporate reporting in order to attract longer-term investors by providing better information – in terms of format, timing and content – on how they are really creating value over the short, medium and longer-term.