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October 2002
Operating and Financial Review
Summary
This report presents the findings of research into non-financial reporting conducted among communications and marketing directors of FTSE 1000 companies
The research took the form of a postal self-completion survey
Of 500 directors contacted, 85 responded
MORI also conducted 5 in-depth interviews with communications directors
Fieldwork took place in 12 August - 2 September 2002
Summary
Respondents recognise the growing importance of non-financial reporting to their businesses:
– over nine out of ten respondents believe that it enhances corporate reputation
– most see it as a practice that will increase, as 85% say that stakeholders are ever more interested in corporate reporting on non-financial issues
– it is seen to aid financial transparency, as nearly three-quarters feel that it makes it easier for investors to understand how well companies are performing
– three quarters say it already plays an important role in influencing management decisions
The qualitative research also indicates that communications professionals in large businesses perceive non-financial reporting positively, primarily because it encourages a broader, more holistic view of the company. It also confirms that the trend towards increased non-financial reporting is driven at least partly by stakeholder expectations, as in the words of one, there has been a “sea change among investors and consumers”
The majority of respondents (84%) report on non-financial issues; these reports are commonly integrated into their company’s Annual Report (45%), although over a third produce a separate report instead
The majority of reports are available online (72%), but only around a third of reports are externally validated
Responsibility for taking an overview of the measurement and reporting of non-financial issues falls within the remit of Communications/PR/CSR/marketing for two-thirds of companies
Over half of our sample identifies a lack of clear guidelines as a major obstacle to non-financial reporting. A further obstacle is the difficulty of establishing objective measurements. Indeed, as evidenced by the qualitative in-depth interviews, while financial measures are deemed easy to understand and deliver, elements of non-financial reporting are, in contrast, less tangible, more difficult to identify and measure, and relatively ‘new’ to companies and staff
Summary
There is some resistance to the idea of making non-financial reporting mandatory; over half our sample (53%) are against such legislation, while only a quarter are supportive
However, this does not seem to represent outright opposition to any form of Government involvement. For instance, two-thirds agree that there is a need for one set of guidelines to simplify reporting. Furthermore, a clear majority (79%) reject the idea that non-financial reporting is an unnecessary burden on companies. Therefore a set of guidelines that simplified or clarified reporting on non-financial issues would probably be welcomed
The qualitative research implies that legislation on non-financial reporting may be better received if it is set at a broad minimum level, applies internationally and comes with market incentives such as tax differentiation based upon environmental performance
Summary
Though three-quarters of respondents have heard of the OFR requirements, less than a third claim to know a ‘great deal’ or a ‘fair amount’ about them
Some directors recognise that legislation could help companies overcome several of the obstacles to non-financial reporting, in particular by increasing senior management support (56%), and unifying reporting practices (51%)
A slim majority also believe that legislation would have a positive effect on their overall corporate reputation and their reputation among stakeholders
However, on balance, respondents remain to be convinced of the bottom-line benefits of the OFR. While nearly half agree that it may lead to improvements in non-financial performance, only 28% believe the guidelines will have a positive impact on making company shares more attractive, and fewer still (16%) believe they will help improve commercial performance
Summary
Non-Financial Reporting
Non-Financial Reporting: Legislation
20%Unsure
53%Do not Introduce
legislation tomake it compulsory for larger companies
26%Introduce legislation tomake it compulsory for
larger companies
Base: All respondents (85)
93
85
75
72
26
879
53
13
7
6
5
Non-Financial Reporting
Base: All respondents (85)
% Agree
Q How strongly do you agree or disagree with the following statements about non-financial reporting?
% Disagree
Enhances a company’s reputation
Is unnecessary burdenon companies
Make easier for investors to understand how well companies are performing
Stakeholders are increasingly interested
Is important for business management decisions
Introduce legislation to make it compulsory for larger co’s
72
62
56
56
25
28
39
33
5
5
1
Measuring Non-Financial Factors (1)
Base: All respondents (85)
% To a great extent % To some extent % Not at all
Q To what extent if at all does your company measure or monitor each of the following non-financial factors?
Business objectives, strategy and drivers of performance
Corporate governance
Fair review of the development of the business
Policies and performance on issues
55
48
41
33
39
42
28
51
5
12
5
1
Measuring Non-Financial Factors (2)
Base: All respondents (85)
% To a great extent % To some extent % Not at all
Q To what extent if at all does your company measure or monitor each of the following non-financial factors?
Events, trends anduncertainties that may affect futureperformance
Account of key relationships with stakeholders
Receipts from and returns to shareholders
Other factors that mayimpact on corporatereputation
Reporting Non-Financial Factors (1)
Base: All respondents (85)
Q To what extent if at all does your company report publicly each of the following non-financial factors?
42
41
39
35
41
40
45
47
13
9
13
12Business objectives, strategy and drivers of performance
Corporate governance
Fair review of the development of the business
Policies and performance on issues
% To a great extent % To some extent % Not at all
Reporting Non-Financial Factors (2)
Base: All respondents (85)
Q To what extent if at all does your company report publicly each of the following non-financial factors?
31
24
14
14
29
49
65
58
21
15
15
20
Events, trends anduncertainties that may affect futureperformance
Account of key relationships with stakeholders
Receipts from and returns to shareholders
Other factors that mayimpact on corporatereputation
% To a great extent % To some extent % Not at all
39%
45%
16%
Reporting on Non-Financial Issues
Yes - separate report
Yes- integrated with the annual report
Base: All respondents (85)
Q Does your company publish a report on non-financial issues (e.g. a social or environmental report), either as a separate document or as part of its annual report?
No - do not currently produce a report on non-financial issues
36%
33%
31%
72%
7%
21%
Reporting
Base: All respondents (85)
Yes
Available online?
Externally validated?
Q If a report is produced, is the report…?
No
Don’t know
Yes
No
Don’t know
40%
36%
16%
14%
5%
4%
Standards, Guidelines and Models
Base: All respondents (85)
FTSE4Good
Q Which of the following standards, guidelines and models, if any, does your company’s non-financial reporting adhere to?
Association of British Insurers Guidelines
Global Reporting Initiative
London Benchmarking Group
AA 1000
SA6000
67%
20%
13%
Guidelines for Reporting
Yes
Base: All respondents (85)
Q Do you think there is a need for one set of guidelines to simplify the reporting of non-financial information?
Don’t know
No
54%
8%
6%
4%
2%
1%
Responsibility for Non-Financial Factors
Base: All respondents (85)
Communications/PR
Q Which functional area has the responsibility for taking an overview of the measurement and/or reporting of non-financial factors?
CSR
Marketing
Finance
Environment
HR
Responsibilities
Base: All respondents (85)
% Yes % No % Don’t know
Q Does your company currently have any of the following?
67
49
14
25
38
68
13
18
8Someone responsible for NFR to stakeholders
A director with specificresponsibility for NFR
A non-executive director with specificresponsibility for NFR
54%
48%
47%
35%
34%
33%
32%
Major Obstacles (1)
Base: All respondents (85)
Lack of clear guidelines
Q Which, if any, of the following factors would you say are major obstacles to reporting non-financial information in your company?
Difficult to identify objective measurements
More pressing priorities
Too many guidelines
Lack of resources
Lack of senior management conviction re benefits
Concern - expose commercially sensitive info
29%
28%
28%
19%
19%
12%
Major Obstacles (2)
Base: All respondents (85)
Lack of cross-functionalco-operation
Q Which, if any, of the following factors would you say are major obstacles to reporting non-financial information in your company?
Lack of expertise in NFR
Concern- expose companyweaknesses
Lack of clear responsibility for NFR
Lack of board interest/support
Concern - expose companyto criticism
Stakeholders
Informal feedback
Q Does your organisation currently evaluate the effectiveness of its communication of non-financial information to internal and external stakeholder audiences and if so by what means?
65%
52%
47%
31%
22%
11%
69%
41%
44%
35%
35%
7%
Informal evaluation - internal
External stakeholdersInternal stakeholders
Base: All respondents (85)
Media evaluation - internal
Formal evaluation by agency
Media evaluation - external agency
Do not evaluate effectiveness
75
39
2535
54
2
External Services for Non-Financial Reporting
Base: All respondents (85)
% Agree
Q Please indicate whether you agree or disagree with each of the following statements
% Disagree
The amount of non-financial information thatmy company reports will increase in the future
My company uses external serviceproviders for non-financial measurement and reporting
The number of external service providers that my company uses for non-financialmeasurement and reporting will increasein the future
OFR Requirements
9%
21%
21%
22%
21%
Knowledge of OFR Requirements
A littleBase: All respondents (85)
Q How much do you feel you know about the likely requirements of the OFR?
Never heard of until I received this questionnaire
A great deal
A fair amount
Heard of OFR but know nothing about requirements
Introduction of the OFR (1)
Base: All respondents (85)
% Positive % Neither/nor % Negative
Q How positive or negative an impact do you think the introduction of the OFR would have on each of the following aspects of your business?
56
56
51
51
28
26
33
28
3
3
6
746 34
2
Enhancing reputation
Unifying report practices
Improving reputation
Increasing seniormngt focus on NFR
Improving non-financial performanceof company
Introduction of the OFR (2)
Base: All respondents (85)
% Positive % Neither/nor % Negative
Q How positive or negative an impact do you think the introduction of the OFR would have on each of the following aspects of your business?
38
33
28
22
40
46
34
48
6
8
8
1016 58
6
Increasing employeesatisfaction
Making company shares more attractive
Integrating departmentswithin your company
Improving commercialperformance
Building the standard of communications
