In an attempt to become more transparent businesses are disclosing increasing amounts of information, yet many are becoming more opaque as a result.
That is the opinion of experts at Grant Thornton, which is offering advice on how companies can better communicate with shareholders and others.
Martin Kneale, a director at Grant Thornton in the Isle of Man, said: ‘Businesses here in the Isle of Man and internationally are disclosing more and more information, driven by a combination of regulation, shareholder activism and the power of social media. But there is a question over whether is it having the intended effect.
‘Based on the opinion, experience and research of Grant Thornton experts around the world the short answer is no. If anything, corporate information is becoming more opaque and difficult to comprehend due to the sheer volume of information being released. Clear communication is essential and that should not be forgotten in the bid to become more transparent.’
The University of North Carolina’s Kenan-Flagler Business School published research that found anyone wishing to read the annual business and financial summaries that public companies have to file in the United States would need to have accrued more than 20 years of formal education to comprehend them, such is their complexity.
Martin added: ‘This phenomenon is not confined to the US. Research by Grant Thornton on the FTSE 350 shows that the average annual report comes in at 300,000 words, half of which is typically historical financial data. It illustrates that companies are struggling to apply the materiality concept, the accounting principle that says trivial matters are to be disregarded and important matters are to be disclosed.
‘Greater transparency usually just means more volume. The key to effective transparency is to strike a balance between holding back vital information and swamping investors with too much detail. Providing a huge bank of data effectively says “Here it is – now get on with it”. This isn’t the way you would treat customers so why treat investors like this?’
Martin continued: ‘Grant Thornton suggests companies adopt different approaches for different audiences and stratify the level of detail available, with a top tier containing key messages followed by additional levels that provide greater detail. To do this, you need to understand the needs of your audiences.
‘There is no one-size-fits-all solution to transparency, it depends on the environment in which you operate, the people you’re communicating with, your company values and culture. It requires companies to listen to consumers and shareholders and to give serious thought to how they portray their company culture via their corporate reporting. Companies do a lot of talking, but much less in the way of listening to their providers of finance. They need to engage in dialogue with their shareholders and show that they care.
‘The simple message is transparency isn’t easy; too little and you risk upsetting shareholders, too much and it will lead to confusion and opacity. For companies that get the balance right, though, the rewards in reputational and revenue gains can be substantial.’
To find out more about how your business can communicate more effectively contact Grant Thornton Isle of Man on 639494.
Photo - Martin Kneale.