Companies are not reporting clear enough information to enable investors, suppliers and customers to understand their business activities and prospects, according to new research from PwC. The report, published in the wake of the recent hostile takeover of Cadbury by Kraft, warns that ineffective reporting could leave businesses vulnerable.

In ‘Integrated reporting: what does your report say about you?’, PwC analyses the reporting of FTSE 350 companies. It concludes that, although businesses are meeting regulatory requirements, they struggle to communicate clearly to key stakeholders on issues such as performance, risk appetite, governance and delivering on their strategy.

“Management teams need to put themselves in the shoes of a sceptical outsider, such as an investor, analyst or shareholder,” said David Phillips, senior corporate reporting partner at PwC. “Those businesses that don’t risk coming across as badly run and poorly governed.

“If your business was to be bid for, would your current reporting help or hinder your defence? The starting point for an attack on your competence, integrity and track record will be how you have presented yourself externally. If the external picture is a poor reflection of the internal reality, it will only make your life more difficult.” 

Too much reporting focuses on financial information and the research goes on to suggest that it is time to adopt an integrated model of reporting, bringing alignment between internal and external reporting. Producing incomplete or inconsistent reports makes it difficult for boards to exercise oversight and could lead to investors relying on other, potentially inaccurate, sources of information.

As further PwC research suggests an increase of M&A activity in 2010, ensuring that your external picture reflects the internal reality is critical.

See also