Materiality in Corporate Reporting

January 25, 2013
In today’s global marketplace company stakeholders come in all shapes and sizes, and can be directly, as well as indirectly, associated with your business. Research presented today at the World Economic Forum suggests that the strongest criticism of a company’s perceived wrongdoing frequently comes from individuals and organizations that have no link at all with that business. They want to know how a company goes about its business today and what the future may hold. Questions are varied, and include: Where does the money go? Where do you source your raw materials? Is this new product safe? Is your research conducted in an ethical manner? Who oversees what you do? The more enlightened companies become in recognizing that it’s in their own vested interest to acknowledge stakeholder queries and to engage them in a transparent and sincere dialogue will develop trust and mutual respect. A key element to this is materiality, in other words talking about those issues that directly impact the business. In this regard, the quality of corporate communication varies between sectors. With the exception of pharmaceutical companies, most industries tend to shy away from discussing material issues or identifying issues as material—despite the fact that materiality leads stakeholders to take greater interest in the report. This lack of materiality also casts doubt on the utility of the information provided. If a company does not identify an activity as an essential to its business activities, its core values, or the communities in which it operates, then the importance of that initiative is questionable. Overall, the topics that have a relatively high share of material statements are pricing, financial results, and stock price. However topics such as globalization, human resources, and environmental policy have much lower levels of materiality suggesting that many companies have only a limited—and potentially risk-inducing—vision of what issues can have a critical impact on their operations. Therefore, it is not surprising that the CSR “product” from companies is generally not considered as satisfactory by stakeholders. Many companies still fail to realize that they operate in markets AND societies. It is natural to report CSR activities to stakeholders, as companies operate not only in markets but also in societies. Keep in mind that employees are consumers and citizens, which at times have conflicting wants and needs. Consumers’ expectations tend to focus on a company’s products and services and the benefits that they provide. However, at the same time, appropriate legislation and regulations for businesses, as well as the economic and social well-being for people, are preeminent for citizens. It is important to note that in a multinational group, approximately three-quarters of the staff are of diverse nationalities and cultures. The employees are also citizens and will raise the question of social responsibility of his or her company when it operates in their own country. The WebFilings collaboration platform can assist companies in the execution of their CSR strategy by helping them prepare reports that can support the transparency and dialogue that are much appreciated by stakeholders. Reference: Racheline Maltese ‘Corporate’s DNA Report 2012’ Davos, January 24, 2013.
Francis Quinn

About the author

Francis Quinn is the Director of Corporate Sustainability Technologies for Workiva. Before joining Workiva, he directed sustainable development for L’Oréal in Paris.