This blog is based on my 2018 ICAEW-commissioned presentation at ICAEW’s Information for Better Markets Conference in December 2017. ICAEW’s brief was: What makes corporate communication effective? You can see the recording of the presentation here
The resulting paper is co-authored with Prof Doris M. Merkl-Davies. Doris’s expertise is communication and linguistics. Our full paper is now published in Accounting and Business Research.
A Conceptual Model of Corporate Communication in a Capital Market Context
Much accounting research assesses corporate communication effectiveness in terms of either share price reactions or by means of judgements by subjects in experiments. We take a different perspective, conceptualising effectiveness in corporate communication as a multi-dimensional construct based on a two-way dialogic process between companies and their audiences.
We introduce the concept of connectivity from the communication studies literature. We identify three components of connectivity: textual connectivity, intertextual connectivity and relational connectivity. Connectivity refers to the ability to connect different sections of a text (textual connectivity), to connect texts of different time periods or different genres (intertextual connectivity), and to connect firms with their audiences (relational connectivity).
Accounting research and guidance from regulators is almost exclusively focussed on textual connectivity, for example, examining various aspects of readability and the quality of the writing (e.g., FRC’s Clear and Concise initiative). These approaches are incomplete as they ignore intertextual and relational connectivity.
The concept of connectivity is already in use in the accounting literature. The International Integrated Reporting Council (IIRC) identifies ‘connectivity of information’ as one of its seven guiding principles.
Seven criteria of effective communication
What makes communication effective? We identify seven criteria of effective communication originating in research in linguistics and relate them to the three components of connectivity. We then integrate these elements into a two-way dialogic model of communication. Our conceptual model views the effectiveness of communication as context-dependent and emphasises the importance of building and maintaining relationships between firms and various groups of financial stakeholders.
The seven criteria are:
In its conceptual framework, the International Accounting Standards Board identifies characteristics of accounting information that make it useful, including relevance, faithful representation, comparability, verifiability and understandability. These characteristics are implicitly aimed at rendering communication more effective and reflect many of our seven criteria.
Digital technology and social media
Developments in digital technology and social media warrant a new way of thinking about corporate communication, arising from their capability to establish effective channels of communication with a wider range of shareholders. IIRC sees the potential of digital media for enhancing “connectivity of information”. In our paper, we discuss how digital technology and social media enable connectivity, focusing on the three components of connectivity. We identify directions for future empirical studies focu
ssing on the use of digital technology and social media for dialogic communication between companies and their stakeholders.
Digital media have transformed the way we communicate with each other. Companies will have to adapt to this ‘brave new world’ in which they no longer have control over the information environment.