Part 5: Wider questions about the role of statements of corporate intent

Statements of corporate intent: Legislative compliance and performance reporting.

In this Part, we discuss the wider questions raised by our findings about the role of statements of corporate intent:

  • in providing accountability between public entities, shareholders, and the public; and
  • as a governance mechanism for shareholders to use.

We intend to use these questions to further consider the use and role of statements of corporate intent. In the meantime, the questions may serve as helpful discussion points for public entities and their shareholders.

How important are statements of corporate intent to the accountability of public entities?

Our work in examining a sample of statements of corporate intent for legislative compliance has suggested that these documents appear to have a low public profile. Statements of corporate intent were only rarely provided on the websites of public entities we examined. We also question if the statements of corporate intent are considered important by some public entities or their shareholders. This contrasts with annual reports, which are typically provided on entity websites and appear to have a higher profile as public accountability documents. In a few cases, we struggled to get a statement of corporate intent directly from public entities, even though legislation requires the documents to be tabled in Parliament or otherwise made publicly available.

This impression that statements of corporate intent are accorded a low profile or importance was partly reinforced by our legislative compliance findings. Although we found broad compliance, in some cases it was difficult to tell if a statement of corporate intent served any additional accountability or strategic purpose other than as a compliance document.

To what extent are directors and shareholders of public entities meaningfully involved in commenting on the content of statements of corporate intent?

In order to explore the usefulness of statements of intent in providing accountability to shareholders, we would need to examine in more detail the processes involved in preparing and finalising the content of those statements. All the entity types we examined in our performance audit are required by law to present a draft statement of corporate intent to shareholders for comment.

In our view, the involvement of directors and shareholders should focus on some key content requirements of the statements of corporate intent, including setting entity objectives and suitable performance targets for measuring achievement against those objectives.

What decision-making occurs about the relevance of content covered in statements of corporate intent?

There is scope for entities and their shareholders to decide on the relevance of some of the content in their statements of corporate intent. To improve the performance reporting, entities can also provide more information than what is legislatively required.

For example, in our examination of legislative compliance, a common omission was full coverage of accounting policies. Because accounting policies are required to be published in annual reports, it is arguable whether it is necessary to repeat them in statements of corporate intent. However, in our view, including full accounting policies can allow shareholders to discuss those policies with the entity, particularly where there is discretion in the polices selected, or where the selection of one policy over another will significantly change how an item is accounted for or reported. There is also an advantage in having accountability documents that stand alone without requiring other publications to be consulted.

In another example, although the legislative requirements are for statements of corporate intent to include the next three financial years, it might be more appropriate for longer term planning for some statements to span more than three years, particularly with entities which hold significant infrastructural assets (such as some council-controlled trading organisations and State-owned enterprises).

To what extent do directors and shareholders of public entities use their statutory powers to modify statements of corporate intent?

All of the types of public entities we examined have provisions in their legislation for directors to modify a statement of corporate intent at any time, provided written notice is first given to shareholders of the proposed modification, and any shareholder comments are considered. Some of the entity types also have provisions for shareholders to require the entity directors, by resolution, to modify a statement of corporate intent by including or omitting any content provisions.

We are not aware that these provisions to modify statement of corporate intent are commonly used by public entities. It would be useful to learn if there are specific reasons for these provisions not being used.

What role do other accountability methods have for public entities and their shareholders?

We acknowledge that, for many public entities operating in a competitive business environment, the information provided in a statement of corporate intent about their future intentions and objectives needs to be balanced against issues of commercial sensitivity. In such cases, the public reporting of strategic intentions might put them at a competitive disadvantage with private sector competitors not required to produce a statement of corporate intent. In these situations, the reporting in non-publicly available ways (for example, business plans or briefing meetings) may be more important than the processes involved with producing a statement of corporate intent.

It is possible shareholders find this type of contact with their public entities more meaningful. However, such contact needs to be balanced against wider expectations of transparency and accountability by public entities.

Is public reporting of performance against targets as effective as it should be?

In the sample we examined, the quality of reporting in annual reports against performance targets set in the statement of corporate intent was mixed. We intend to look into this further, to assess whether it was a result of poor reporting practices by some entities, or whether other factors were involved.

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