Transparency, as we all know we should know, is an excellent attribute for any corporate to possess. Dealing with an ever-increasing range of stakeholders, treasurers are just like any other senior professional in corporate life, and must play their part in reporting fully and openly to the whole range of stakeholders: shareholders, bondholders, pension trustees – well, the list goes on and on.
Any sensible treasurer knows that the City does not like to get surprises – even when they’re nice ones – and one of the key tasks of the major focus on risk management is to try and anticipate and communicate the potential pitfalls that corporates are all too often heir to.
While reporting to the various parts of the City has always been part of the corporate reporting territory, there are now new lessons to learn. Dealing with the nuances of how to report to the Pensions Regulator, for instance, is bound to cause problems, even if they are only classified as teething troubles.
But one of the most intriguing issues will be how the corporates and the City will cope with the new requirements of the soon-tobe Operating & Financial Review (OFR), which has become a statutory requirement for companies, effective for financial years on or after 1 April 2005.
A key part of the disclosure framework is “the position of the business, including a description of the capital structure, treasury policies and objectives, and liquidity of the entity, both in the period under review and the future”.
In other words, for the first time, beyond discussions with the finance director and the rest of the board, the bankers and key analysts and shareholders, treasurers are expected to lay bare to the world and his wife their thinking behind the capital structure of the company. For perfectly valid reasons many corporates don’t have the sort of capital structures you would find recommended in the corporate finance textbooks. What the OFRs will actually say on that point will be fascinating – let’s hope it does not descend into boilerplate – and treasurers are bound to be indulging in comparing and contrasting.
The pressure to provide detailed and accurate reporting to stakeholders as well as regulators is growing on corporates. And the nature of the reporting required means it seems obvious that treasurers are set to be drawn more into the front line of making critical calls about who gets told what, when and how.
If asked, treasurers would undoubtedly say that transparency is an excellent thing. But how the motherhood and apple pie ideal actually translates into practice may at times be rather less than clear cut.
PETER WILLIAMS
Editor