Trouble with telling it like it is

WOULDN'T it have been splendid if the annual report from Sainsbury 10 years ago had had a paragraph saying: 'Our years of arrogance as number one supermarket in the country have so alienated our suppliers that they are actively working with Tesco to topple us.'

Perhaps five years ago National Power or Powergen, then both independent companies, might have said: 'Our high level of profits is due to our success in rigging the UK electricity auction, but this may not last as the regulator is about to change the system.'

Even two years ago Jarvis might have told us: 'Our healthy order book is in large part a result of us being by far the cheapest bidder, and some of these underpriced contracts could cause us serious problems.'

But companies never give the kind of forward-looking information that really makes a difference. They never tell you the real risks that could send them toppling from the top to the bottom of the heap in a matter of months. And that is why I have little time for the Operating and Financial Review which the Department of Trade and Industry wants companies to include in its annual reports for financial years beginning after next January.

It believes that if companies produce more forward-looking information, the accounts will be more useful shareholders will engage more and have a more useful dialogue with management. This, they believe, will lead to better corporate governance.

The consultation period on the document ends this week so there is still time to take a look - but not much more. This Government's approach to consultation is to assume people who disagree have not understood what it wants so it explains again what it is going to do. Rarely does anything get modified; almost never is an idea dropped.

The accountancy profession seems broadly in favour of the proposal, but with caveats, to judge from remarks at a seminar last week organised by the Institute of Chartered Accountants. They like the idea that a company should map out its strategy and objectives and indicate how it will get there, quantifying the risks and what it will mean on the upside and on the downside if things do not work out as planned.

But as one finance director pointed out, the more meaningful this information is, the more it would benefit a competitor and therefore will not be given. The auditors, on the other hand, are torn - half the profession is rubbing its hands at the extra work involved, the other half is terrified at the extra liability which might come their way. So the most likely result is the one no one wants and which will make the whole document pointless. To avoid the executives exposing themselves to forecasts which might be held against them should things not turn out as planned, the review will be drafted by the lawyers and become so bland as to be meaningless.

For what it is worth, this view has been expressed during the consultation period, but Patricia Hewitt at the DTI seems determined to press on anyway. The OFR may not work, and it will certainly add to costs, but, hey, it's other people's money.

Abbey choice

ABBEY National chief executive Luqman Arnold has been putting himself about in the weekend Press as part of the PR campaign to sell the deal that will see Spain's Banco Santander take over an organisation that 15 years ago vied with Halifax for the title of Britain's biggest building society.

This is not the end members were promised when they followed the board's lead to convert into a public company. But putting that to one side, the thrust of Arnold's argument is that he had no choice but to accept the bid because the price the Spanish bank is prepared to pay is much higher than Abbey's shares would command on trading grounds alone. Moreover, in his view it could be several years before the bank delivers sufficient organic growth to command such a price.

This is exactly what the City would expect him to say, exactly what he as a former investment banker would be expected to say, and it sums up so much that is wrong in the investment community's attitude to business.

Organic growth does take a long time but it is worth it. Companies can boost margins by cutting costs or reducing the cost of capital, but there is a limit to how far these can go. Organic growth is grindingly hard work, but when it is achieved it opens up horizons where the rewards are limitless. But very few businesses in this country ever get to that point because shareholders want the quick buck today and managements like that at Abbey find it easier to give in to them than fight the battle for independence.