The long and short of it

New research into how annual reporting practices evidence long-term thinking reveal surprising findings

In an era of quarterly capitalism, why should companies communicate their long-term value creation story? A recent research project looks at how FTSE 100 annual reporting practices evidence long- term thinking.


Despite following regulatory checks and balances to the letter, many companies are still unable to convey in their annual report a clear sense of what sets them apart or how well placed they are to take advantage of market drivers. They also provide limited clarity around their unique investment proposition or how they are able to create and sustain value over the long term. One reason for this is that many sections of the annual report are written in isolation and therefore do not provide the connectivity between the elements of the report that is needed to provide a coherent story.

Another missing element in the long-term value creation story is companies’ hesitance to provide sufficient information around their future prospects, evidence their long-term thinking and provide long-term targets that they can be held accountable for.

Why the hesitance?

In this era of quarterly capitalism, many would argue that CEOs are not incentivised to focus efforts on the long-term. The impact of quarterly earnings on share price which in turn impact CEO remuneration is one aspect. Another is that a long-term strategy typically relies on continuous investment in the business to enhance long-term competitiveness and growth. However, these investments only impact the share price in the long-term, while using the same money on high dividends and share buy-backs benefits the share price in the short-term. 

Why is long-term thinking important?

Our research shows that companies increasingly use long-term value creation narrative in the annual report and discuss the value they create for stakeholders more widely. However, further evidencing long-term thinking in the annual report is critical to a credible sustainable value creation story and is paramount in creating a strong message of accountability and trust and securing stakeholder confidence.

Among some investors, the case for long-term investment and fiduciary duty has been building for years. Take the example of BlackRock’s chief executive officer Larry Fink who earlier this year sent a letter to S&P 500 and large European companies asking that every chief executive officer lay out for shareholders each year a strategic framework for long-term value creation. He also asks that chief executive officers explicitly affirm that their boards have reviewed those plans given the critical role boards play in strategic planning. Securing the investment of key investors is critical for the long-term value creation of a company as their backing will allow companies the opportunity to make investments for the future that enhance long-term competitiveness and growth which may come at the expense of dividends.

This gives companies a reason to look at the barriers for long-term investment. In providing this strategic framework for long-term value creation, as suggested by Fink, we believe companies should in particular focus on reporting their strategic priorities, long-term objectives and the investments they make to enhance long-term competitiveness. All of which will serve to evidence their true commitment to long-term value creation and potentially attract a stable shareholder base.

What does the research say?

However, according to our research, only 13 per cent of companies set out specific strategic priorities or objectives with a time frame of five years or more in their annual report. In fact, 27 per cent of companies set no strategic targets or objectives at all, let alone a timeframe for implementing their strategy. This is clearly at odds with the more than half of FTSE100 chairmen and chief executives who in their leadership statements commit to sustainable value creation.

As for companies reporting on investments that enhance long-term competitiveness and create sustainable value, the picture is mixed. We’re finding that 75 per cent of companies discuss capital expenditure to some degree, but only 25 per cent discuss how it will improve the business. Even fewer, 20 per cent, discuss how the company’s investment in physical, fixed or tangible assets is linked to the company’s strategy.

Digging a bit deeper, we find that companies are making reference to the specific tangible investments they are making. For example, 39 per cent refer to specific tangible investment in technology, 19 per cent refer to specific tangible investment in research and development, and 22 per cent to investment in employees or human capital. Some companies make investment in more than one of these areas; 7 per cent report having invested in all three, while 44 per cent do not report having made any investment in any of these areas. However, most of these companies fail to make the connection to how these investments are part of the overall strategy to future proof the company. This makes them appear disconnected and rather than boosting their value creation story it may turn off investors.

Looking ahead

Looking ahead, the challenges include increasing the focus on value creation for all stakeholder groups; moving away from boilerplate reporting in favour of personal insights into performance, prospects, risk and reward; and providing future-oriented business overviews to help combat the short-termism that has contributed to the economic volatility of recent years. We think it’s time for a gearshift. Companies have the foundations in place; now they need to start building. They need to take a more joined-up approach to reporting that reverses the silo mindset, provides a long-term perspective, and explains their capacity for sustainable value creation. We also believe that openness around a company’s long-term strategy and growth drivers, backed by long-term targets, will give investors a better understanding of a company’s future prospects. Fair, balanced and understandable communication is paramount as it will build trust and encourage investors to focus on sustainable value as well. In turn, a stable shareholder base will give companies the opportunity to invest for the long-term.


Executive Summary

  • Traditionally, companies have little incentive to provide evidence of long-term future prospects in their reports, especially given the culture of quarterly capitalism.
  • However, Black Sun research shows that companies increasingly use long-term value creation narrative in the annual report. Yet more needs to be done to build a message of sustainable value creation story, accountability, trust and confidence.
  • Companies should focus on reporting their strategic priorities, long-term objectives and the investments they make to enhance long-term competitiveness in order to show commitment to long-term value creation and attract a stable shareholder base.

Anne Kirkeby

As lead corporate reporting consultant at Black Sun, Anne Kirkeby leads the Research and Strategy team which undertakes research and advises largely FTSE 350 clients on best practice and emerging trends in corporate reporting. Prior to working at Black Sun, Anne spent a decade working in fund management with a focus on ESG analysis and company engagement.