Analysis: Non-financial reporting will provide tool for PR

The Government's company law reform and the creation of operating and financial reviews in corporate reporting require attention from in-house and agency PROs alike, says Lexie Williamson.

In roughly 12 months' time public companies with a turnover of at least £50m and 500 staff and private firms turning over £500m and employing 5,000 will be forced by the Government to publish an Operating and Financial Review (OFR).

Many corporate communications directors will be aware of the OFR and the looming deadline, but to the uninitiated it is a report that will detail non-financial indicators of a company's performance - stakeholder relationships, environmental impacts and risk management procedures.

The introduction of the OFR is at the heart of the Government's proposals to modernise company law and revolves around the principle that subtle, less tangible factors are as crucial as the raw balance sheet in defining corporate reputation.

According to the IPR, which last week launched a document entitled Reputation and the Bottom Line in partnership with MORI and Business in the Community (BITC), the measuring and reporting of non-financial issues falls within the remit of the comms, CSR or marketing function in almost two thirds of firms. This, says the report, makes PR professionals the obvious candidates to 'own' the OFR.

The OFR, the IPR argues, is good news for PR, largely because it is a valuable chance to demonstrate its strategic role in business. It will also give PR professionals the chance to 'raise awareness for greater transparency in stakeholder communications, play a leading role in reviewing corporate strategy' and 'head up two-way communication between the business and its internal and external stakeholders'.

The IPR, aware that Trade and Industry Secretary Patricia Hewitt intends to introduce legislation over OFRs early in the next parliamentary session, asked MORI to quiz corporate comms directors of FTSE 100 companies about their views on them.

The vast majority of respondents (84 per cent) already report on non-financial issues, usually as part of a company's annual reports (45 per cent), although just over a third produced a separate report.

However, while many believe that publishing non-financial information enhances a company's reputation, and most had heard of the OFR, less than a third claimed to know 'a great deal' or a 'fair amount' about them.

More worrying for the IPR, over half (53 per cent) were against the idea of making non-financial reporting mandatory, while only a quarter were supportive. Just 28 per cent thought the OFR would make company shares more attractive and even fewer (16 per cent) believed that they would help improve commercial performance.

However, 54 per cent said the major obstacle to non-financial reporting was a 'lack of clear guidelines'.

So, in a bid to rally the industry, Reputation and the Bottom Line explains the Government's OFR proposals, argues the case for non-financial reporting, provides case studies of OFRs and contains a five-step plan for preparing one.

IPR head of policy Nigel O'Connor says the main reason for resistance from corporate comms chiefs is 'fear of bureaucracy'. He explains: 'There are currently so many different measurement standards of non-financial reporting, which all cost time, money and resources, and companies are afraid of adding another layer. However, the OFR should enable them to whittle this number of reports down into one capsule document.'

The belief that non-financial factors have little impact on share prices is one that Scottish Power group director of corporate communications Dominic Fry dismisses as 'rubbish'.

Fry, who has just overseen the publication of an 'environmental and social impact' report entitled The Power to Contribute, said: 'a transparent, well-managed company with integrity is bound to attract investors. It's important to be able to report back to stakeholders on what you are doing on their behalf, and unless you give them a document that demonstrates what you have achieved against clear targets, it's all a waste of breath.'

But Fry is dismissive of the idea that reports like this can elevate the image of PR. 'The minute the comms team gets interested in its status, we've lost the plot,' he states. 'We should never be the story.'

O'Connor, meanwhile, counters the critics by pointing out that - according to BITC research - non-financial assets typically represent as much as 70 per cent of a company's value.

'If an organisation goes through the OFR seriously, then this will enable it to improve the bottom line,' he adds.

Having said this, O'Connor is aware that the OFR's value will be diminished if it becomes just another piece of 'tick-box' reporting. He therefore believes the DTI working group, which is currently thrashing out the contents of a typical report, must give companies a degree of flexibility regarding its production.

He says: 'Basically we want businesses genuinely to appreciate the need for transparency; we don't want to create just another hoop for them to jump through.'

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