The 2007 annual report of British bank HSBC Holdings was so heavy that the UK’s Royal Mail limited the number its postmen were allowed to carry in an effort to protect the backs of workers.
At 454 pages and weighing 1.47kg apiece, the hard copies of the reports were eventually delivered late to around 35 000 British shareholders as postal workers are permitted to carry a maximum of 16kg per satchel.
HSBC quipped: “In any case, you can download the thing from hsbc.com.”
The issue then highlighted growing frustration with the increasingly complex requirements of corporate reporting. In the case of the HSBC tome, 133 pages were devoted to explaining accounting rules under the International Financial Reporting Standards, although the bank was also criticised for filling the report with an uninformative amount of “greenwash”.
Nearly four years later, the emerging consensus is that shorter is sweeter.
In a foreword to a discussion paper released this week by South Africa’s Integrated Reporting Committee, corporate governance crafter Mervyn King notes another reason for questioning the relevance and reliability of annual financial reports: the string of corporate collapses over the past decade.
“Reports based largely on financial information do not provide sufficient insight to enable stakeholders to form a comprehensive picture of the organisation’s performance and of its ability to create and sustain value, especially in the context of growing environmental, social and economic challenges,” he writes.
Sustainability reports have suffered similar weaknesses by providing only a backward-looking review of performance “and almost always failing to make the link between sustainability issues and the organisation’s core strategy”, he adds.
The answer? An integrated report that, if done properly, would allay much of these concerns over time and have the added benefit of lowering administrative costs – not at all insignificant in a country where the average annual report is estimated to set a company back R600 apiece.
“People think the integrated report will be much bigger, but in fact it will be more concise,” King writes. page 4
Companies Act
Sitting in on meetings of the portfolio committee on trade and industry is something of a bitter-sweet experience.
It is sweet because of the quality of the engagement between the committee members and whoever happens to be making a submission to them; added sweetness is provided by the fact that the meetings tend to start on time and are overseen by a very efficient chairperson.
The “bitter” part, particularly in the case of the new Companies Act, is the realisation that if the present members had been in place since the beginning of this very long-drawn out process, the final legislative product would look considerably better than it is actually going to look.
Sadly, the much-improved new committee was put in place too late into the legislative process for it to be able to undertake the sort of extensive surgery that is needed to turn this into a truly world class piece of legislation.
The high quality of the questions asked and the issues raised by the committee members has been favourably commented on by most of the parties who have made submissions on the companies legislation.
It appears to have been particularly consoling to those parties who feared that the Department of Trade and Industry was hell-bent on pushing through “its” act with minimal changes. The vigour of the committee members has also acted as a counterpoint to the perception that only powerful vested interests were keen to see changes in the proposed legislation.
But sadly the early years of implementation of this piece of legislation are likely to be highlighted by difficulties with the Companies and Intellectual Property Registration Office, notwithstanding assertions to the contrary by the department.
Barloworld
You do have to suspect that something is seriously wrong when one of the longest-serving former executives of a group feels the need to raise concerns at that group’s annual general meeting.
Brian Connellan has no history of shareholder activism but he does have a long history of executive management at Nampak, which used to be a significant subsidiary within Barloworld. Until his recent retirement he was a long-serving director on several of Barloworld’s listed subsidiaries.
So when it comes to the detailed slog of corporate governance he is no neophyte; he also probably has a reasonable understanding of the complex nuances that go into devising a remuneration policy, in particular he might have some sensitivity to that old chestnut: “We have to keep increasing bonuses or we will lose staff.” It would be safe to assume that if someone of Connellan’s stature has concerns about executive pay, perhaps something should be done.
One major question is, if Connellan has been stirred into action why is there absolutely no sign of the Public Investment Corporation (PIC) on this matter? The PIC, one of Barloworld’s largest shareholders, rightly made a very public fuss over the lack of transformation at board level a few years back. Having secured the appointment of a black chairman at Barloworld, the PIC has abandoned its brief role as an active shareholder, apparently indifferent to the steady decline in performance.
Perhaps the PIC, like many other shareholders, is unable to make out precisely what the group’s dense remuneration policy actually means. As shareholder activist Theo Botha remarked, there is such an appalling level of disclosure on this issue that it is extremely difficult for the shareholders to hold management to account. It will be interesting to see what happens when the policy has to be put to shareholders next year, in terms of the King 3 code. page 3
Edited by Peter DeIonno. With contributions from Ingi Salgado and Ann Crotty.