The merits of good reporting
Best practice reporting shields businesses against volatility or disaster’.
For some sceptics, this leap is too big to make. It is relatively easy to see how the goal of communicating the company’s key financials and strategic overview in a relevant and connected way helps companies to create unified frameworks that make it easier to explain previously complex information to stakeholders. However, the difficulty lies in measuring the more direct impact of best practice reporting and whether it can indeed mitigate operational failure - and this, I suppose, is real world value. Let’s consider the theoretical example of a soft drinks company to approach this question.
The consumer company example
Undoubtedly, for many companies including a soft drinks company, a transparent, robust reporting infrastructure is linked with the ‘licence to operate’ and therefore it becomes almost a ‘raison d’etre’. For example, if the company does not disclose the standard use of dangerous chemicals in its lemonade and someone blows the whistle, then its manufacturing licence might be revoked. What if there is no such malpractice and an external circumstance occurs, whereby the water is contaminated and normal filtering processes become ineffective, with the result of consumers noticing the taste change - if not worse? Can the company’s reputation recover and can reporting be a parachute for a smoother landing? I believe that good reporting is such a tool and can play a key role, as it ensures that there is an appropriate response in place to at least acknowledge and assess the situation faster, realising how it threatens the key strategic aims or other areas of the business model and value chain. Reporting offers the starting point and the process, laying out all the pieces of the ‘enterprise’ puzzle (enterprise defined as the wider organisation including everyone the company engages with). Very quickly, senior management knows who will be impacted and how.
The logic behind the claim
If our example company has engaged in good reporting, then it has engaged in mapping out all the key resources, relationships and partnerships that it can draw upon, knowing how exactly it can leverage upon them and alleviate the situation. Chances are, if this company is committed to explaining these well, it is also truly committed to strengthen these relationships (formed alliances even), therefore in a crisis, can draw upon these to overcome it. Taking the example of the soft drink company, newspaper editors or Non-Governmental Organizations, or even consumers who feel valued and have learned to trust the brand through open communication and engagement, will allow to be reached and will eventually ‘forget’ or ‘forgive’. Such a scenario would probably require an appropriate and effective PR campaign, however the alliances and the relationships need to have been formed already and this comes from good reporting. Truly good reporting will have established a pre-set governance level response, or even a strategy to mitigate against this particular issue, by having a robust risk framework in place.
To sum up, there may not be valid cause and effect data currently out there that supports the relationship between reporting and performance or risk mitigation or it might be too difficult to measure, however there is a rationale to support it. When action is aligned to promise, we have observed that the former links do occur together in companies that are hit by similar crises yet remain successful in the long term.