Transparent reporting key to success of NZ Inc

We need to articulate and measure our values to succeed in the international arena, writes ANDY BRITTON*.

Imagine New Zealand as a listed company, NZ Incorporated. The Government is the executive team, with the Prime Minister as CEO.

The consumers, investors and suppliers are the New Zealand population.

Like a listed company, the success of NZ Inc's performance depends on its supply of information about its external environment, and the resources and competencies that management can harness to execute strategy.

The challenge NZ Inc's management faces is to present a coherent picture linking strategy to measurable value-creating activities.

In meeting this challenge successfully, NZ Inc's share price will reflect its true business value. It will also show that management's thinking is aligned to and reflected in day-to-day reporting.

The end result would be a marketplace satisfied that management is running the business in an effective and transparent manner and, in theory, NZ Inc's share price would rise.

But traditional financial reporting fails to take into adequate account some critically important information about likely future performance.

What's missing is information about the intangible assets and non-financial value drivers, which are often leading indicators of financial success.

They include management's view of the market, business strategy, and a company's investment in the factors underpinning value - including people, innovation, brand, and reputation.

Management has referred to innovation as a key factor in the country's international success. This raises questions such as: What is the strategy to develop innovation so that it creates an economic benefit? How do we measure innovation? What is our target? What other countries do we benchmark ourselves against? Can our management and the supply chain develop measurement systems that articulate this strategy?

For NZ Inc to maximise value, it must take all these factors into account - not only with innovation but with all value drivers, such as brand and reputation.

This is particularly important given that non-financial drivers contribute more to company value as capital markets mature.

A recent study by PricewaterhouseCoopers of the Australian capital market, indicated that for the top 250 listed companies, only about 25 per cent of market value was directly reflected in book value.

And a recent Standard and Poor's report of 1500 top global companies identified a positive correlation between increased corporate disclosure, lower cost of capital and higher share price.

The market can't value what it can't see, so when companies fail to provide the necessary information, the market relies on other sources, increasing everyone's risk.

A new approach to performance management and reporting addresses this issue by improving corporate transparency. This approach is called value reporting and it can help companies realise their full value in the capital markets.

It does this by addressing gaps between the current financial reporting model and the demand by investors and other stakeholders for better and broader information.

* Andy Britton is PricewaterhouseCoopers valueReporting leader in New Zealand.

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