Reporting Season
For thousands of companies, July / August is reporting season. A season when the chairman steps out briefly from the shadow of the Chief Executive and fronts the report to the shareholders. This is a major event in the company calendar, where the chairman, on behalf of the Board, delivers to shareholders an accounting of its stewardship of the shareholders’ equity and an assessment of current situation, business health and future prospects. Through adequate information, plus enquiry and analysis, shareholders should be able to judge whether the Board is adding value and building a sustainable profit stream.
Private companies differ widely in the formality of the Annual Meeting, but the fundamentals are the same. A Chairman’s / CEO’s written report accompanies the financial reports, whose format is prescribed in statute. Dividend, solvency, fees and audit decisions are made or ratified. Elections may be held. Optional additions include information about strategy and upcoming major transactions, the competitive landscape, new markets or products being brought on stream, performance of recent capital expenditures, and the state of the key success drivers.
From balance date to annual meeting is a busy time for boards, and especially chairs. Activities associated with and prior to the meeting generally include the business plan and budget process; the scrutiny of risk and resource both for ongoing business and for projects; peer reviews of directors and introspection about the quality of governance; and the review, incentive decision and goalsetting of and with the CEO.
This whole programme sounds routine, rules-based and unexciting. Not so! Unlike public companies, shareholders of private companies are all activist! With accountability comes rebuke, if expectations are not met. New Zealand has traversed five years of minimal growth, market and currency volatility, and rapid technological change, where many private companies have struggled to post satisfactory returns on investment. Survivors who have not wasted a good recession may be leaner, nimbler, smarter, more core or niche, more adaptable – thus strategically healthier. But the last thing to come right is the bottom line.
In this reporting season, chairs and boards delivering another disappointing result without clear evidence of improved performance ahead may have an unhappy meeting.