Posted in Reporting on 14 January 2015By Leon Milligan, Consultant
…. I’d make it shorter' sounds all too familiar. At school, shorter was usually better if an essay started off longer than it should be. It meant we’d spent more time thinking it through and polishing the facts while discarding the less necessary content.
Business life is essentially the same. Communications are always better if shorter; they get more attention. Corporate reporting is a case in point. Somehow, Annual Reports have become longer but too often they are less useful. Making strategic reports more concise has become a mission for the regulator with a report on just that topic published back in the summer. Indeed, the FRC’s Guidance on the Strategic Report also dwells on the topic of materiality with the intention of encouraging brevity.
Materiality is the watchword here in that search for brevity. So, how do you decide what is material? If regulation specifies something then it has to be there. But there are words that demand discretion and judgement, such as ‘key’, ‘principal’ and ‘to the extent necessary’. Then, what is material? Well, a whole page of KPIs presented by a utility is interesting but not all are ‘key’. What can investors learn about strategic progress from such a spread? An array of a dozen or more risk factors that explains the risks of simply being in business may be compliant but these are hardly all ‘principal’.
There is another side to the issue of materiality and that is the linkage of connected information. If a Strategic Report can link together effectively related information, constructing in the investor’s mind a more complete picture, then interconnected content makes decisions about what is material a much easier prospect. If the strategy discussion is clear, then linking a concise set of business-focused key performance indicators will show to investors progress made in the year. Equally, linking truly principal risks to the strategy discussion will project a conclusive understanding of what could make the achievement of strategic objectives more challenging. It is all a matter of logic.
Logic needs linkage to construct a clear framework of strategy-related information, and sound logic makes decisions about materiality a far less daunting task. In the end, I could only make it shorter because I thought more about the interconnectedness of the information I was reporting. It was the thinking that took the time.