The majority of fund managers and brokers feel that attempts to improve corporate reporting are paying off. The bad news is there’s still a huge gulf between what investors want and what corporates are delivering. Victoria gives advice on how to bridge the gap.

We received encouraging news from our latest institutional investor research -investors are finally seeing improvements in corporate reporting. A survey among 50 global fund managers and brokers by SAS with Thomson Reuters revealed that nearly 90% feel initiatives to encourage disclosure have made reports more useful, a significant increase on 2008.

Less encouragingly however, there remains a stark disconnect between the perception of the annual report's role and the reality of what is being delivered. More than half of those questioned see the role of the annual report as a provider of valuable insight to help assess the future potential of the business and yet only half of investors feel annual reports in general provide an interesting insight into a company's investment proposition.

It is clear that in the minds of investors there remains a significant gulf between excellent and poor company reporting in the UK. Here we offer some practical tips to help narrow the gap:

1. Clearly articulate your strategy and measurement of that strategy

Only 28% of investors surveyed feel annual reports clearly articulate the strategy of the business. Investors are demanding a clearer statement of strategy and greater use of KPIs in the measurement of company performance.

In particular they are signalling the need for better linkage of elements in reporting such as, for example, through the alignment of market context to strategy; strategy to KPIs; performance against those KPIs and future expectations of performance; risk to any forward-looking statements. There is increasing disparity between those companies that ensure their strategy runs through their narrative reporting to form a cohesive investment story and those that purely do the minimum to comply. 

2. Demonstrate value

There is a genuine desire among investors to understand where value is coming from within the business at both a macro and micro level. Investors score companies very averagely on their ability to give meaningful insights into the future prospects of the business through their communications. It is telling that the most frequently used sections of companies' websites by investors are 'press and media' and 'about us' over the IR section.

Investors, especially fund managers, are looking for nuggets of information that their peers might not be party to on which to base their investment decisions. This could be due to the investors' face-to-face meetings with management and IR teams becoming more standardised and professional and therefore less likely to include those 'off the cuff' insightful remarks of days past. At a micro-level greater segmental/ divisional information in terms of enhanced disclosure on an individual business unit level scored 4.8 out of 5 in terms of need.

3. Use the web to its full advantage

Our research reveals the most useful ongoing source of company information among investors to be the online annual report which interestingly scored higher than the actual IR website. Specifically companies must deliver the information in the format the audience wants - the searchable PDF for example is the most popular report format over both printed and HTML reports.

Additionally outside of specific publications, 80% of investors use webcasts and 90% use the corporate website frequently to support investment decisions - an increase of a third from 2008. To ignore these two important opportunities to communicate with investors would be foolish. However, investors' usage of email news alert serves as a warning in this regard. Usage has decreased 22% over the past 2 years, with the obvious conclusion to draw being due to the increased flood from companies who are not succinctly targeting the information they send out to their investor audiences.

4. Don't assume that because you include something, investors can find it

When asked what could make corporate reporting more useful the majority of investors cited better navigation and signposting as a priority (scoring a 3.6 score out of a possible 5). Surprisingly this figure was up 16% on 2008 signalling that some companies have yet to focus on the linkages between print and online reporting, pagination and report structure, and links between corporate reports and other company communications such as the IR and corporate websites and results announcements.

Better linkage of elements in reporting and clearer links to the website for further information also rated highly among the professional investors consulted. Company communications should work with each other complimenting and supporting one another in message, tone and content. Even if internally they might be owned by different individuals, consistency is key.

5. And finally...be authentic

The investors consulted believe management are generally ineffective at communicating with honesty and credibility through the annual report and corporate website. Just shy of half of those questioned feel the writing in annual reports is too corporate and led by PR departments.

With investor trust at an all-time low and cynicism rife, companies must focus on communicating with investors in a open and transparent way in the tone of the communications they are producing; the content of the reports such as market context and commentary and forward-looking information; and the level of disclosure for example around divisional information and exposure to risk.

Above all, the feedback from this year's research demonstrates that all the communications produced by companies are widely used by investors. From the printed annual report to the corporate website to specific elements such as webcasts, investors are engaging with companies through a variety of channels. The challenge going forward will be to ensure a clear, consistent, insightful investment story is communicated across all touch points in a transparent and authentic manner.

This article was published in Finance Week.

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