Frans van der Grint, Strategy Director en Financial+M&A Practice Director Europe
The reputation and related trustworthiness of a (listed) company clearly depends on its financial performance. But at least as important is the way that this performance and – more broadly – the company’s financial position, is interpreted. A CFO plays an important role in influencing this. In addition, the quality of information provided is more important than the frequency.
To start with the latter statement, the frequency with which figures are provided is a current matter of discussion. One of the main reasons for this is that the Dutch parliament relaxed reporting regulations in 2016, meaning that listed companies are no longer obliged to publish their quarterly figures. 10 of the 25 AEX funds have taken advantage of this relaxation, including three funds that give no Q1 or Q3 figures at all. Far from all investors are happy with this move, as shown by the negative reaction from the VEB, which opposed the change in the law back in 2016. “It is about transparency,” according to the VEB.
That suggests that transparency is an end, not a means. What it boils down to is that investors are presented with relevant and timely information on which to base investment decisions. In this light, “transparency” means almost nothing, because what is it actually?
The decision not to provide quarterly figures can be just as clear as the decision to do so. In both cases, investors know where they stand in terms of frequency. Naturally, the quality of the information that they receive is far more important. I deliberately say “quality” and not “detail”, because there is no proof that providing more detailed figures leads to a higher perception of trustworthiness. What is proven is that more transparency does not lead to more trust. Although “transparency” and “trust” are both generic, far-too-broad terms that everyone can interpret differently, research by scientists has shown that greater transparency does not result in greater trust.
What does have an effect is the extent to which “the source” is seen as reliable. Here too, interesting scientific insight is available, which shows that the “technical expert” is far and away number one in terms of sources with authority. “Board members” are much lower in the rankings. This is why it is important to emphasise the role of the CFO as a “financial expert”. He or she occupies this natural position within the board, and should take advantage of this when addressing diverse stakeholders. This is not to say that the CFO should not have a view on strategy or operations, but his/her primary focus must be to profile him/herself as an “expert”, thus giving the figures an extra level of reliability, irrespective of whether they are presented every quarter or every six months.
This is a translation of a column that first appeared in Dutch in CFO Magazine (Edition 1, 2018)