Companies disagree on whether they must disclose too much information in annual reports

Companies disagree about whether the quantity of information contained in annual reports is a good or a bad thing, according to a poll of governance professionals conducted by ICSA: The Governance Institute and recruitment specialist, The Core Partnership.

Some 39 percent of respondents felt that companies are required to disclose too much information, while 38 percent disagreed, and 23 percent were unsure. Despite this, a majority of respondents (78 percent) said they believe annual reporting is still a useful exercise for stakeholders, with only 7 percent believing it is not, and 15 percent unsure.

Those who argue that companies must disclose too much information in annual reports offered a number of criticisms, among them:

Companies are required to produce more and more information, some of which is too detailed to be totally comprehensible to shareholders.

The annual report’s usefulness gets diminished the larger the report gets.

It has just become a tick box exercise.

The annual report has become a source of obsolete information and unnecessary expense which could be used for more critical matters or investing in better governance practices and training. It would be more useful for stakeholders to receive information in real-time.

Those who disagreed argued:

The information companies are required to disclose is useful in giving investors and others a comprehensive understanding of the company, its culture, its business and its longer-term prospects

It is the only time non-institutional shareholders are given the chance to see a comprehensive report from the company’s board that is not governed by marketing spin.

Until we move to a time when investors can log in and view verified live financial data for companies, annual reporting is the best way to provide the necessary transparency on performance.

“The crux of the matter lies in the amount of time, money and resources required to produce a once-a-year product that is read by a very limited audience,” said Peter Swabey, policy and research director at ICSA: The Governance Institute. “Certain information might more usefully be reported online, while it would also be beneficial if companies could move away from boilerplate to report on more bespoke matters of relevance to them and their stakeholders.”