D Murali

‘Use annual reports to enhance trust'

D. Murali | Updated on August 13, 2011


Every annual report is an opportunity for the company to showcase itself as trustworthy to the investor.

Important communication tools often get deployed to just fulfillthe objectives of ‘information' and statutory compliance, rues Mr N. Chandramouli, CEO of Trust Research Advisory, Mumbai (http://bit.ly/F4TMouli). “And in most cases the annual report also suffers from the same problem,” he adds, during a recent interaction with Business Line. “Though the annual report is meant to give a comprehensive report of all activities of the company over the past year, it usually ends up only as a financial reporting document.”

An annual report, as a document that needs to generate trust among its audience, can be a ‘long-term asset,' elaborating on aspects such as the vision, mission, philosophy, values and business objectives of the organisation, argues Mr Chandramouli. Our conversation continues over the e-mail.

Excerpts from the interview.

Can you cite a few examples of how trust gets enhanced by disclosures in annual reports? And also, instances where trust suffers as a result of what is said in the annual reports?

Every annual report is an opportunity for the company to showcase itself to its most important stakeholder – the investor. An annual report must be seen as a permanent milestone in the history of a company – something that will be referred to time and again, with repercussions and outcomes that cannot be fully understood or predicted currently.

Voluntary disclosures made by a company even in the case of things that may not have gone correctly or profitably, most often showcase the organisation has a strong value system.

Such action of the company encourages the person who trusts (the investor in this case) to continue to place trust despite the error or transgression on part of the organisation. In fact, if communicated adequately, the disclosure will help add trust on the organisation. To build trust, one would rather err on the side of over-disclosure than suffer with under disclosure which may get revealed later.

What are your observations about Indian practices in this regard, compared with those in mature economies?

Trust gets built when there is sufficient voluntary action towards building it, not when an organisation complies with statutory regulations alone. Therefore, I think that the issue of being transparent to build trust is completely cultural, making each country unique.

We have mature economies like the US where all sorts of skullduggery is resorted to by some companies when reporting (one of the main reasons behind the recent recession is the lack of transparency and dishonesty in reporting); and you can also have Indian organisations which stick to ethical reporting principals.

One important thing to note is that, when companies in India reach foreign shores for business or for money, they become more transparent automatically, due to the expected rigour of scrutiny.

Would you like to offer a few suggestions on metrics and disclosures that companies can consider including in their annual reports?

Some universal disclosures and metrics that would help in building trust may be as given below:

Third party assessment on ‘environmental impact' of projects being undertaken above a certain expected investment;

Lobbying assignments funded directly and indirectly by the company;

All donations made by the company (especially the donations made to political parties);

Litigations currently underway and a brief summary of the status of the case;

Company-Union (or worker) issues expected and/or resolved with details of the key persons involved in the resolution on both sides;

List of the gifts given by the company and the names of recipients beyond a certain amount;

The organisational CSR (corporate social responsibility) and a report of the benefits it has provided to society; and

List of ex-bureaucrats who the company may have hired and the role assigned to them along with the transaction amount

Other disclosures depend on the type of sector the company and are very specific, for instance it would help if pharmaceutical companies list the doctors to whom they have made any direct or indirect contributions.

Finally, your views on the language in annual reports that can impact trust.

Very few organisations really think of the annual report like a communication document, instead they think of it is a burden of necessity.

However, the few companies which use this document innovatively can make lasting impact on all their stakeholders (and not just their investors).

Several times, there are no professional agencies guiding the language, messaging and (softer) objectives of the annual report. While I am sure several companies have done good work by using annual reports as communication tools, the few who come to mind as creative annual reports include Infosys and Mukta Arts.

( >AccountSpeak.blogspot.com)

Published on August 03, 2011

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