For all their talk of creating shareholder value, listed companies are still failing to be clear enough about their strategies on the issue, the English ICA has said, writes Brian Hanney. The institute's financial reporting committee, in a newly published discussion paper, says companies should be more open with the external disclosure of information used to manage the business. The paper, Inside Out: Reporting on Shareholder Value, calls for companies to set out, in their annual reports, their strategy for creating value and the progress they are making towards achieving it, as shown by key internal performance indicators. John Coombe, finance director of GlaxoWellcome and deputy chairman of the Hundred Group of finance directors, said: 'Delivering shareholder value must be the ultimate objective of all management teams. Reporting to shareholders how this has been achieved and, more importantly, how it will be achieved in future, should be a key element in a company's reporting process.' In the paper, the institute emphasises its belief that investors' needs should be the focus of the annual report and in its present form, it includes too little strategic information to fulfil its purpose as a source of information for investors. The institute also presents evidence of what it calls 'investors' keen interest' in disclosures about the development of a company's strategy for creating value. It says many managers believe a gap exists between the internal perception of a company's potential and that of the stock market. Management should understand investors' valuation models, which are increasingly based on forecasts of future cashflow. The paper adds: 'We are aware that commercial sensitivity may impose limitations on the disclosure of forward-looking performance measures and targets but we are of the opinion that there remains considerable scope for additional information to be published.' The institute recommends that a listed company should disclose: its ambitions; strategic direction; a description of the decision-making and management processes; and the preferred measures used internally to monitor economic performance. In addition it recommends: a description of the market; why it is the right market to be in; the business's competitive position; future trends anticipated; and how management intends to maintain or alter the business's position within the market. David Gould, of the National Association of Pension Funds, welcomed the paper's recommendations. He said: 'Pension fund managers are concerned that boards of directors should develop medium-term corporate strategies and regularly assess what has to be done to achieve those aims.'
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