On the other side, important stakeholders are struggling to find relevance in how finances are reported and are looking for something more. Stakeholders want more insightful information that tells the company’s current story and where it is moving forward. On a parallel track, these companies are not realizing who their true stakeholders are.
Even though these reports are prepared for investors, they do not comprise a company’s core audience. The way trading securities and funds are done today, an average stock hold is a mere 22 seconds. So even though a public company needs to answer to its “investors,” the majority own stock in the company for less than a minute.
As an alternative, a company needs to identify its key stakeholders and determine what they want to know about the business. Harvard Business Review identified five key questions that need to be asked to determine a company’s stakeholders with required responses:
- Does the stakeholder have a fundamental impact on your organization’s performance? (Yes)
- Can you clearly identify what you want from your stakeholder? (Yes)
- Is the relationship dynamic – that is, do you want to grow? (Yes)
- Can you exist without or easily replace the stakeholder? (No)
- Has the stakeholder already been identified through another relationship? (No)
Now that a company knows who it is speaking to, who is it going to include? The balance sheet and everything else required by the SEC is not going away here, simply because it can’t. But what can enhance a company’s financial report in order to have the numbers say more about its direction?
Here are a few ways that a company can speak to its true stakeholders while maintaining the integrity and requirements of a financial report:
- Make Them More Frequent – The people that really care about a business want to hear from it more than four times a year. Perhaps a monthly “check-in” reflecting on what has been done and what is being worked on free of numbers would be beneficial to key stakeholders.
- Include More Detailed Intangibles – Anyone that has ever read an earnings report knows that the opening of the report strictly looks at the numbers (revenue, expenses, ratios, etc.). Yes, this is important to know but it does not tell the complete story of what is going on with the business. Include practical details – what is selling, what needs help, employee activities and spotlights, what is new and exciting. Sustainable performance data, focusing on nonfinancial performances, can help improve internal and external decision-making and aid in telling the larger story.
- Determine Key Performance Indicators That Matter – Every business has something different that is important to them outside the profit/loss statement. A company should determine what that is and report on it regularly. This will help determine success and failure on a more tangible level.
- Indicate What is Changing and What’s Next – On a parallel path to tell a company’s story, the key stakeholders will want to know what is on the horizon and being developed. This is important to move forward as an organization with backing from those that care about it the most.
- Remember to Manage the Risks – Through all this new reporting, a company still needs to remember its obligations as a publicly traded organization. Anything that is forward-looking needs to be disclosed to all shareholders to satisfy compliance requirements.