Corporate reporting needs to be forward-looking says ICGN in new Guidance on Non-financial Business Reporting

The ICGN calls for more integration of non-financial business information in financial statements as an important tool to enable well-informed investment decision-making in new Guidance[i]   issued today. Non-financial information helps put historical performance into context and portrays the risks, opportunities and prospects for future growth. It plays an important role in mitigating the short-termism that currently afflicts financial analysis and other approaches to valuation.

In this turbulent financial and economic climate, non-financial business reporting should seek to reflect the complexities inherent on a contemporary business – the interdependence of financial and non-financial factors on its prospects; management’s understanding of this interdependence; its ability to harness this for value creation; and awareness of the risks and opportunities that flow from non-financial factors.

Critically, businesses need to recognise the link between improvements in non-financial areas and in cash flow or the share price. Such improvements can occur after a time lag which highlights the importance of relevant non-financial measures as they may act as a lead indicator of future performance. However, it is important to avoid measuring too many things leading to a wild profusion of peripheral, trivial or irrelevant measures.

“Our Guidelines have been developed very much from the investor perspective and in consultation with ICGN members. We havebeen very cognisant of the many other respected initiatives across the globe and our aim is to avoid duplication and to help co-ordinate existing efforts to establish a single reference point for companies about what investors want and expect from non-financial business reporting. This is not about the wild proliferation of unmanageable data but about sufficient and timely information. Promoting a cohesive view of investor needs will give companies a more compelling incentive to embrace the key principles of non-financial business reporting and to integrate this with mainstream financial reporting. This is a prize that is within our reach and is well worth grasping." Frank Curtiss, Chairman of the ICGN Non-financial Business Reporting Committee and Head of Corporate Governance, RAILPEN Investments

The ICGN has published its Statement and Guidance on Non-financial Business Reporting[ii] to help generate substantive dialogue between investors and company boards about the content and timing of non-financial business reporting. The Guidance highlights 7 aspects of non-financial business reporting which should:

• be genuinely informative and include forward-looking elements where this will enhance understanding;
• be material, relevant and timely;
• describe the company’s strategy, and associated risks and opportunities, and explain the board’s role in assessing and overseeing strategy and the management of risks and opportunities;
• be accessible and appropriately integrated with other information that enables investors to obtain a whole picture of the company;
• use key performance indicators that are linked to strategy and facilitate comparisons
• use objective metrics where they apply and evidence-based estimates where they do not
• be strengthened where possible by independent assurance that is carried out having regard to established disclosure standards applicable to non-financial business reporting, such as those issued by the IASB.

The Statement and Guidance will be launched at the at the next ICGN Meeting entitled ‘In times of financial crisis – what now for corporate governance’ being held in Wilmington at the Dupont Hotel on the 10^th of December and hosted by the State of Delaware. There will be a key session dedicated to the role of governance, sustainability and social responsibility in risk management and the development of strategic opportunities for companies. Leading speakers for the session include: David Blood , CEO of Generation Asset Management (USA), Chris Ailman , CIO,  CalSTRS (USA), Frank Curtiss,Head of Corporate Governance, RAILPEN (UK),  Carl Rosen , Head of Corporate Governance, AP2 (Sweden), Ann Yerger , Council of Institutional Investors (USA), and John Wilcox , Senior Advisor, TIAA-CREF (USA).

ENDS

For further information contact:

Frank Curtiss, Chairman, ICGN Non-financial Business Reporting Committee
Email : frank.curtiss@rpmi.co.uk
Office : + 44 (0) 207 256 8003

Editors notes :

[i] The ICGN is a not-for-profit body, founded in 1995, that has evolved into a global membership organisation of more than 500 leaders in corporate governance. Our members are based in over 40 countries and support our mission to exchange information and raise standards of corporate governance internationally.

ICGN members are largely institutional investors who collectively represent funds under management in excess of US$15 trillion. The breadth and expertise of ICGN members from investment, business, the professions and policy-making extends across capital markets enabling the ICGN to actively engage cross- border to positively impact the corporate governance reform agenda, particularly in the midst of this global financial crisis.

[ii] Relevant ICGN best practice guidance is as follows:

• Statement and Guidance on Non-financial Business Reporting (2008)

  The Statement and Guidance clarifies the importance of non-financial business reporting from an investor perspective and informs companies on issues important for investment decision making.

• Statement of Principles on Institutional Shareholder Responsibilities (2007)

  The statement highlights the responsibilities of investors both in their external role as owners of equity and their internal governance responsibilities to their beneficiaries.

• Securities Lending Code of Best Practice (2007)

  The code clarifies the responsibilities of all parties engaged in stock lending.

• Executive Remuneration Guidelines (2006)

  The guidelines focus on how companies should be structuring pay for the long term, disclosing policies and seeking shareholder support.

• Global Corporate Governance Principles (2005)

  The principles endorse the OECD Principles of Corporate Governance and provide guidance around issues of particular concern to the ICGN.