How Corporate Reporting on the Internet is Missing the Boat

In a recent project, I explored the use of the internet for corporate reporting from its beginnings with the start of the World Wide Web up to the present, a period of approximately twenty-five years. Numerous changes have taken place during that period, some of which relate to the technology and others that relate to the changing business and reporting environment. 

Changes in the technology have involved a massive increase in the power of computers and a shift to the use of the cloud for information technology purposes. Changes in the reporting environment have involved recognition that corporate reporting has to be directed to more than pure financial issues towards environmental, social and governance issues. This has led to a broadening of the scope of corporate reporting. There has also been an increased involvement of regulators and legislators in the reporting process.

When the World Wide Web became a viable vehicle for the sharing of information, corporate reporting was still largely fixed in the old style of reporting, one which was primarily limited to the presentation of financial statements and related commentary on paper. This style has been referred to as the paper paradigm.  

The paper paradigm way of thinking carried forward into the years when reporting shifted to the World Wide Web, which meant that the production of traditional financial statements remained the core of the reporting process. Moreover, these financial statements were designed to be read, with any analysis to be done as a separate exercise where data is extracted from the financial statements and then entered into spreadsheets and other analytical tools.

Since the financial statements were designed to be read like a book, they were often presented in the corporate websites in PDF format, which format is intended to preserve attractive and readable formats, but is not a good format for extracting data for analysis. After a few years, some companies began to compensate for this shortcoming by also presenting the statements in spreadsheet or HTML format, thus making the analysis of data much easier.

Still later, regulators began requiring the presentation of financial statements in XBRL format. The US Securities and Exchange Commission was one of the early adopters of XBRL and the most influential. Requirements were introduced sporadically for the XBRL Statements to be presented on the corporate websites, but the most effective and useful requirement was for them to be presented in the regulators’ websites, In the case of the SEC, this meant the statements were presented on the EDGAR system, which made the financial statements of all major listed companies readily available in a form that could be used easily for analysis. Presentation of financial information on such systems, in addition to the corporate websites, is considered to be a part of corporate reporting on the internet.

Reporting on the internet also includes the use of social media, which many companies have been using, although in differing degrees. Twitter is widely used to get quick messages out, such as dividend and stock change announcements. YouTube is often used for videos of events like executive speeches, shareholder meetings and other events. Several other social media outlets are often used to some extent.

In addition to the presentation of videos, the internet is also ideal for the presentation of graphics and multimedia. Most companies are making some use of this capability, although they are falling far short of the full capability of the internet in this respect. Consequently, the graphics presentations one sees on corporate websites are often very much the same as one would see on paper. And so, again, the paper paradigm survives! 

The use of various devices for accessing the internet also has an impact on corporate reporting. For the most part, these include smartphones and tablets, which are characterized by smaller screens and computing capacity that is more limited than that of laptops and desk model computers. This means that websites need to be presented in responsive ways, such that they can be easily viewed on small screens. Most companies are taking this approach.

Through all this, the paper paradigm has proven to be quite resilient, with most companies still primarily using PDF to present their financial statements in their websites, although the presentations in alternative formats has also grown in usage.

While companies have been grappling with the presentation of financial statements on their websites, a major change has been taking place in the world of financial management: the shift towards data driven decision-making. While much of this shift has taken place in the realm of management decisions, nevertheless, the purpose of financial statements is to be useful in the making of decisions. That means using them for data-driven decision-making is made more difficult if they are presented in a form to be read rather than used for analysis.

Reporting on the internet, however began to adapt to data-driven decision-making in a more direct way:  by reporting arrays of data in tabular format using Excel or external data display tools. It is expected that such reporting will increase in the next few years and as it becomes more common, likely the regulators will leap into action. Another aspect of data reporting is that of reporting key performance indicators. This had been a regular practice for years, but the increased attention given to reporting data has resulted in some of that data being reported in the form of key performance indicators as well.

In addition to reporting data, a major societal shift towards growing concern about the environment, social issues and governance issues resulted in an expansion of corporate reporting to encompass these areas. ESG reporting has been reflected in internet reporting, usually in the form of silos. In most contemporary websites, environmental and social disclosures are included as a separate report. Governance disclosures are usually a part of the Annual Report, but sometimes a separate report on the website. 

The E, S and G elements are rarely shown in an integrated form. Indeed, recent research indicates that all financial, environmental, social and governance disclosures should be integrated into a general Integrated Report. Experience tells us that ESG elements have financial implications, and that many financial results are influenced by ESG. They cannot be separated, but that is what most companies do. The internet offers a unique opportunity to present their results on an integrated basis. Most companies are missing this opportunity.

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