June 9, 2017 Disclosure and communication

If there was one key rule for effective communication it would be to know your audience. Without that one basic level of understanding whatever you attempt, whatever medium you use, it is unlikely to have the impact that you intended.

It was with interest therefore that we noted a forthcoming Financial Reporting Council (FRC) event entitled ‘Better Communication – Seeing the wood for the trees: role of disclosures?’ The event which the FRC are running jointly with the IASB and the European Financial Reporting Advisory Group looks to build on the IASB’s work on improving communication in financial reporting. Areas up for discussion include the impact of cross-referencing information, the way in which information is presented and whether alternative performance measures are misleading or useful.

The event also seeks to build an understanding of whether principles can make communication more effective. To that last question we’d have to answer yes they can, particularly when the principles flow from a strong and inclusive corporate culture which sees investors as rightful partners in the success of the business.

The higher regard you place on your investors, the more likely you are to build a communication matrix which genuinely seeks to deliver a true and fair picture of the business. But no matter how highly you regard your partners in success, your communication plan has to be built on understanding those investors and delivering a message in a way in which they will best assimilate it.

That means following basic communication rules starting with:

• know your audience – are you speaking to professional investors and fund managers or individual shareholders. Are shareholders drawn from across the globe or from particular regions. Are they supporting your organisation because of particular ideals, for example for ethical considerations, are they looking for growth or for dividends. Knowing the answers to these questions and more will help you to report in a way which will best communicate with your stakeholders.
• be clear about your message – this is where the wood for the trees analogy comes into its own. You may have so much to say that the overall picture is distorted within a plethora of individual images. Yes you have to present a true and fair picture but sometimes less is more if you are trying to help people to see the true progress of the business.
• identify the best channel(s) to use for your communication – businesses are already moving towards online reporting, helping to reduce the paper mountain which used to thud on the doormat but they also need to consider the impact of communicating through social media, emails and so on. Knowing when a tweet can be beneficial and when it may breach regulatory guidelines is one area that all businesses may do well to brush up on.