“A DECENT annual report is becoming like a hygiene factor—it’s like washing your teeth on a daily basis.” That was the observation of Mikus Janvars, Director of Corporate Finance at Evli Securities, one of several analysts featured recently in the video embedded below.
So in addition to being transparent, your annual report also needs the same care and attention as your pearly whites. Or, as Colgate says, “Smile care you can trust.”
The importance of both trust and transparency was driven home again recently in the 2011 Edelman Trust Barometer. Trust in all institutions—business, government, media and NGOs—increased 2%-5% worldwide over the past year. Those numbers don’t tell the real story, though, as the barometer was a study in contrasts.
Business barely trusted to do what’s right
“Trust in business may have stabilized globally, but it is different and conditional, premised on what a company does and how it communicates,” observed Edelman president and CEO Richard Edelman.
In the United States trust dropped across all institutions, with trust in business falling 8 points to 46%, placing the world’s largest economic power within five points of last-place Russia. In the UK, trust in business fell 5 points to 49%.
Canada, however, continues to enjoy stable levels of trust in both business and government. That’s not surprising considering that Canada was less affected by the economic downturn and its banking system was the model of stability during the financial meltdown. Of Canadians surveyed, 54% trust business to do what was right compared to 50% in 2010.
Even though business is barely trusted to do the right thing, some industries enjoy high trust rankings. Globally, technology tops the list at 81% followed by automotive at 69%. Financial services, meanwhile, finished at the bottom of the heap at 50%.
Profit a poor driver of reputational value
The survey also highlights several trust factors that impact corporate reporting. Traditionally you could rely on showcasing financial performance or leadership to help establish corporate reputation. But not any longer. The reputation of companies is now shaped by vastly different factors.
The top two factors are high quality products and services (69%) and transparent business practices (65%). The bottom two are widely admired leadership and financial returns to investors, both at 39%. However, those rankings also vary geographically. In Canada, the importance of transparent and honest business practices tops the list at 83%.
The low ranking of financial returns dovetails with another survey question: Should companies create shareholder value in a way that benefits society, even if that causes a reduction in shareholder value? About 80% agreed, ranging from a low of 55% in the UAE to a high of 91% in Germany.
So, more proof that profit and purpose and a stakeholder approach to shared value trumps the traditional view that the sole social responsibility of business is to generate profit.
Company CEOs, meanwhile, are enjoying a resurgence in popularity, ranking in the top tier of trustworthy spokespeople. That’s a striking shift from two years ago when they sat second from the bottom. Fifty percent say CEOs are credible spokespeople about a company, a 19-point increase over 2009. That recovery isn’t universal, however, as 89% of Canadians believe that a CEO is credible, compared to only one-third in the UK and US.
Earning trust through open communication and collaboration
The opportunity for companies today is to commit to open communication and a collaborative approach that benefits society—not just shareholders.
That means transparency on not only financial and operational risk and executive pay. But also about how the company makes money, how it manages operations, how it treats employees and how it protects the environment, among other things.
Trust is no longer a commodity that is acquired. Investors and other stakeholders will only bestow trust on companies and leaders who deliver performance, communicate frequently and honestly, and consider the role of business in society. In other words, they expect straight talk about the whole story, and not just a pretty smile.
European Analysts on Annual Reports