The findings of our annual review of reporting practices in the FTSE 350 show how companies have been responding to reporting challenges, before and after the impact of COVID-19 began to be felt.
2019/20 was set to be the year of the stakeholder in reporting. New statements on how directors should regard their duties under section 172 of the Companies Act 2006 and engage with their stakeholders had been introduced. The revised UK Corporate Governance Code 2018 was set to encourage more clarity on the culture of businesses and their role in society. The environment and climate change were also high on the agenda.
Far from pushing them to one side, the coronavirus (COVID-19) pandemic and the measures taken to address it have only emphasised the importance of many of these issues. And of course COVID-19 has also meant a new focus on short and medium term survival for many companies, and raised serious questions for many more about the longer term impacts.
The findings of our annual review of reporting practices in the FTSE 350 between 1 April 2019 and 31 March 2020 show how companies have been responding to these challenges, before and after the impact of COVID-19 began to be felt in earnest.
A crisis often drives innovation in reporting and we have seen a number of new trends, particularly around reporting on liquidity and going concern as well as the stakeholder agenda. But our findings also show that the underlying principles of good reporting have not changed. It has never been more important for a company’s strategy to be at the heart of the annual report.
We saw substantial new content on the stakeholder agenda, but the outcomes and significance of engaging with stakeholders and considering the other factors in section 172 for the business could often be more clearly set out.
51% of companies explained how the board considered section 172 factors when making decisions and 38% discussed how they responded to stakeholder concerns
Responses to the Code have focused on stakeholder (particularly workforce) engagement, but there were limited changes in reporting to show how governance processes and procedures are applied to run businesses.
82% of companies referred to the board’s role in stakeholder engagement but ONLY 44% reported how the board contributed to the delivery of strategy
More recent reports tended to include extensive reporting on the impact and response to COVID-19, focusing on risk, the treatment of stakeholders, the use of alternative performance measures and particularly liquidity, going concern and stress testing.
In a sample of recent interim and annual reports, going concern disclosures were almost 3 times longer than in the previous year, with 73% including stress testing (up from 14% last year)
There is a continued upward trend in linkage between strategy and other areas of the annual report, but still a lack of clarity on how far forward the information looks out.
62% of companies showed the relationship between their strategy and principal risks and 58% did the same for KPIs, but only 22% connected strategy and sustainability; and over 60% still do not specify a time period in their discussion of strategy
We will be exploring the findings of our review further in four themes that will form the basis for a series of publications and events.
Head of Corporate Reporting, PwC United Kingdom
Tel: +44 (0)7730 304057