Reliable annual reports in unreliable times
The 2020 annual report will need to break the usual mould as the operating environment has changed so drastically and in unprecedented ways following the global outbreak of COVID-19, said Raja Senanayake, the Chief Officer – Smart Academy at an event held at the BMICH for over 100 annual report preparers organised by Smart Media, The Annual Report Company.
Mr. Senanayake explained that the task of putting together an effective annual report has always been difficult as a result of the fast-paced changes taking place both locally and internationally. Impacts of the fourth industrial revolution (driven by digitalisation), demographic changes (demands and requirements of younger generations), tighter regulations and competition from unexpected quarters meant that organisations needed to be agile and strategic, adjusting business models to ensure that they remained relevant while continuing to create value.
He said all organisations are caught in this storm, but each is weathering it in diverse vessels – some better able than others to navigate the turbulence depending on aspects such as industry, business model, resourcefulness and diversification. The 2020 annual report, then, needs to communicate just how the organisation is set to creating value in the medium to long term, with a particular focus on operational resilience and financial performance.
Mr. Senanayake also stressed the importance of a credible narrative that provides context to the current year performance and the future outlook. In an environment where stakeholder trust is at an all-time low, the annual report 2020 must include the good and the bad, the challenges and the opportunities because the COVID-19 operating environment will impact every single chapter of the annual report. The organisation’s operational resilience and financial performance in the face of the current operating environment will need to be discussed in the Leader’s Address and the Management Discussion and Analysis of the annual report. Other areas impacted include what aspects are material to the organisation and how stakeholders are engaged – including detailed discussions on every stakeholder from customer and employee to environment and society. In the same vein, risks will need to be reassessed and discussed in terms of their impact, mitigating actions taken, lessons learned and strategies adopted. Since the post-coronavirus era is yet to dawn, inclusion of stress testing and scenario analysis as well as forward looking statements will help readers of annual reports get a clear picture of the organisation’s viability and full potential.
Within the tumultuous operating environment of 2020, Mr. Senanayake asserts that the familiar assumptions made in annual reports and taken for granted are likely to be questioned. For instance, can organisations continue to claim that ‘employees are their greatest assets’ if their actions speak otherwise? Some drastic actions may have been unavoidable but investors and other stakeholders will be looking to see what steps the organisation is taking in order to create value sustainably. Past performance is no longer a good measure of future success because following COVID-19 the future as one knows it has changed so vastly from the operating environment of the past several years. This means that conventional business models are challenged and organisations must show how their strategy and business model are fit for the future, or, if they are not, how the entity will be changing their strategy and business model to be future-fit, he added.