Framework for Evaluation

We derive our evaluation framework from the forward-looking provisions of the Operating and Financial Review (OFR) Reporting Statement published by the accounting Standards Board in January 2006. If companies wish to demonstrate to maximum effect, and greatest potential value, their capacity for strategic thinking, planning, management and action they will hold to the best practice guidance of the 2006 OFR Statement. The Enhanced Business Review has largely similar provisions but is not as specific about strategy and objectives as is the OFR. We always evaluate to the higher standard.

The figure above illustrates the factors that the OFR specifically encourages companies to include in their reporting narrative and that together provide forceful evidence of strategic capability. Simply and effectively articulated, these factors present an interlocking picture that will indicate to even the non-expert Report user the capacity of a Company to create future value. Any Company with clarity of strategic thinking and application should be able to address each of these seven factors with ease in an intelligible and value-adding manner.

Scoring System

The figure above illustrates the actual score profile of a FTSE100 Company. For each factor a Company can score 10 points. There are seven factors. The overall score is a simple average of the seven factors. Five factors are content-based and match to Figure 1.  We also score for standards of communication and coherence. This is because the original academic research observed that the correlation between narrative disclosure and share price performance is basically driven by shareholder confidence. So, the capacity to access and assimilate narrative content is central.  In our scoring model Communication and Coherence account for just over one quarter of the overall score.

Evaluation Process

50 questions make up our 2008 evaluation process. We assess each question on a Likert scale of 10 [Definitely] down to 0 [Not at all]. Note also the differentiated questions for groups and single business companies in the Strategy & Objectives questions. 'Not applicable' is also an option and has a nil effect upon the resultant score where it applies.

Download the question template