Is the company healthy?
We need a system that delivers “general practitioner-level” insight into the overall health of the business, argues Paul Druckman, CEO, International Integrated Reporting Council
A young man is feeling under the weather. He unsure what is wrong but he does have big plans for the future. He is about to sign up for a mortgage, get married, start a new job and take the holiday of a lifetime. But with so much to look forward to, he has to take care of the present because, over the last few months, he has had aches and pains that do not feel normal. So he goes to a specialist. And the specialist takes his blood pressure and gives him the print out. “Nothing to worry about there”, he tells his anxious patient. A few days later, still not feeling great, he goes to another doctor who tests his cholesterol level and the report comes back – “all clear”. The next day he sees a specialist in liver and kidney health, the tests are taken, and extensive reports come back, all good.
At the end of the third week of tests and consultations, the baffled patient looks around at all the reports and print outs, with technical language, numbers and disconnected information about specific aspects of his well-being. His girlfriend enters the room and says, “I see these reports, you have been to umpteen specialists and have spent a lot of time and money, but are you healthy?”
Don’t you feel for that poor man? He has so much information to hand, all technically accurate, precise and delivered with care, diligence and expense – yet resulting in so little knowledge, let alone wisdom. Certainly it gives him no basis to plan for the future.
Maybe a simple trip to his general practitioner would have given him more insight into his overall health than those individual specialists? And it may have identified a more generic cause of his problems that could not be accessed by such focused attention to detail within individual and isolated branches of medicine. It would certainly have taken less time and cost a lot less.
But sometimes we over complicate things. Look at our companies today. Many of them are complex beasts – with the economic power of some nation states. Apple, the world’s largest company, has a market capitalization that would catapult it close to G20 membership – at over $600 billion it has the economic might bettered only by 20 countries on the planet. And as businesses have grown, our expectations in terms of the information they produce, has changed too. In 1947 Unilever, a complex, large, multinational company even in those days, published an annual report of some 32 pages.
Today, it is unexceptional for a business to produce an annual report running to several hundred pages, alongside many others such as a sustainability report. Within the annual report will be individual segmented reports on, for example, governance. As if that suite of information was not enough, the company’s website might provide additional information and the company will more than likely deliver presentations to financial analysts. Analysts themselves will interpret this data and information and produce reports on companies to investors, while the media will add a further layer of interpretation highlighting – perhaps sometimes exaggerating – a tiny aspect of a company’s performance to provide news value, if not necessarily adding insight into business strategy.
But, to paraphrase the girlfriend of our patient above: “Is the company healthy?” This is surely the question anyone with an interest in the long-term viability of the business is asking – whether a provider of financial capital, employee, supplier or customer. So how about setting a new challenge to companies to answer the following question:
“How are the factors that go towards making your company successful over the short, medium and long-term, working in harmony to deliver that purpose?”
This may seem like too general a question: too high level for our detailed and content-hungry minds. Yet even a cursory analysis of corporate failures and scandals in recent years – Enron, RBS, Toshiba and Volkswagen to take just four – reveals that the devil is often not in the detail at all, but hidden in plain sight. The market has quite often missed something obvious, visible and that has been noted either in the company’s own reports or in media commentary, perhaps concerning the governance, strategy or management of the business. While visible, these are not necessarily forensic issues that require specialist insight or lengthy reports. Indeed, often the lengthy reports obscure vital information and make it harder for stakeholders to reach a conclusion about the overall health of the company.
We need to rethink the system of corporate reporting so that it delivers insights that inform, not obscure, the general picture of company health. We need a system that delivers “general practitioner-level” insight into the overall health of the business, ensuring that the obvious issues are not batted away. When it is the norm for a company to answer that basic question about its general health in a clear, concise manner, we will truly begin to understand the leading indicators of future value, which I believe is the basis of a more inclusive, less risky and – ultimately – healthy global economy.