Shareholders ‘uninformed of risks’ at FTSE 100 firms

FTSE 100 companies may be failing in their duty to adequately inform shareholders of the risks that their organisations face, according to new research from the Chartered Institute of Internal Auditors (IIA).

 

The IIA claimed that just one-third of firms within the index provide any tangible metrics on risk or mitigation techniques as part of the ‘strategic report’ section of their annual report.

 

As of September 2013, the Companies Act 2006 has required FTSE 100 enterprises to add strategic reports to their yearly documents. According to the Act, organisations should include enough information on financial and non-financial key performance indicators to provide “an understanding of the development, performance or position of the company’s business”.

Are FTSE 100 firms under-reporting?

The IIA noted that 68 per cent of companies failed to give shareholders a quantitative indicator of relevant risks, instead choosing to offer a broad outline of the potential dangers ahead.

 

“A clear picture on risk is central to a full understanding of a company’s position, the quality of its earnings and potential long-term outlook,” said IIA chief executive Dr Ian Peters.

 

“It is therefore imperative that the company has rigorous measures to assess risk and that these are reported.”

 

The institute noted multiple areas where organisations could improve, such as placing tangible measurements on debt and credit risk, as well as IT risks and service levels. More businesses should also offer information about how much they’ve invested on training staff to tackle problems.

 

Furthermore, strategic reports often lack qualitative statements on how risks have changed from year to year. More than half (52 per cent) didn’t explicitly set out whether a risk was new, upgraded, downgraded or removed from previous reports.

 

“The strategic report should allow for full review of risk and mitigation strategies. Simply outlining or describing risks faced is not enough – but this is what the majority of companies currently limit themselves to,” Dr Peters said.

Ethical concerns within the FTSE 100

It is not the first time this year that the IIA has called the quality of annual reports into question. In May, the institute found that nearly four-fifths of FTSE 100 companies don’t provide ethical performance metrics in their annual reports.

 

Corporate social responsibility (CSR) and transparency are becoming increasingly important to businesses, governments, customers and shareholders.

 

Dr Peters said individuals and organisations are likely to be “unimpressed” if they feel FTSE 100 companies are “only paying lip service to ethical values”.

 

As businesses focus more on CSR and risk management, we may see a rise in corporate governance recruitment spending.

 

Stakeholders continue to take a dim view of organisations that breach regulations or otherwise act unethically, so major corporates will be keen to show they are delivering on the principles they claim to abide by.

 

Our Market Reports combine our review of the prevailing conditions in the risk management recruitment market together with the results of our latest employer survey.

 

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