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The Bruce Column — Integrated reporting

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05 Dec 2014

Our regular resident columnist, Robert Bruce, talks to Paul Druckman, Chief Executive Officer, International Integrated Reporting Council (IIRC) about the 'journey' of integrated reporting.

Paul Druckman has always admitted it is a cliché. But as Chairman of the International Integrated Reporting Council, (IIRC), he still refers to the progress being made in the acceptance and implementation of integrated reporting as ‘a journey’. So when I asked him the other day whereabouts he was on his journey he responded that they had ‘crossed the chasm’. The movement to bring about a system which pulls together all of an organisation’s reporting strands and connects them in a way which tries to show how strategy, governance, performance and prospects lead to the creation of value over the short, medium, and long-term has reached a significant point in its development. Last year’s final publication of a framework for integrated reporting has become this year’s progress and momentum towards a wider acceptance.

What Druckman means by having crossed the chasm is that they have moved from having hundreds of companies taking up the idea and implementing the concepts, to thousands. ‘We are still with the early adopters but we are now moving into the later stages of early adoption’, is how he expresses the progress. And that means that integrated reporting is no longer an experimental way of changing the balance in how a company explains what it has done and is doing. The levels of credibility and momentum are growing rapidly. The B20, the business grouping within the G20 economies, has endorsed integrated reporting. It played a central part in a recent seminar at the World Bank’s annual meeting. The Governor of the Bank of England, Mark Carney, extols its virtue. He sees it as a way that companies can avoid what he describes as the ‘tragedy of horizons’, the way in which companies seek comfort in a compliance culture and ignore the long-term troubles up ahead. The International Corporate Governance Network of investment professionals and governance experts announced that it expected its members to ask companies they invest in to follow integrated reporting.

All of this, as Druckman points out, ‘changes the mindset’. And it emphasises his long-held belief that integrated reporting should act as a catalyst which encourages companies to explain themselves better. The introduction of the legal requirement for UK companies to produce a strategic report is a case in point. The fact that companies had to introduce a report which looked at the wider issues meant that they could pick up the concept of integrated reporting and broaden their horizons still further. And that takes him onto what he sees as the real benefits. To get to the goal of integrated reporting companies need to embrace what the IIRC calls integrated thinking. They need to bring all the many disciplines within the organisation out of their siloes and to start collaborating and sharing expertise with each other. And it is the benefits of this process which he sees as being the real goal, the real value to an organisation.

The momentum is there. Going back to his analogy of it being a journey he argues that ‘integrated reporting is now inevitable’. But if so then another tricky part of the journey needs to be negotiated. And that is the credibility, the trust in what integrated reporting produces, and the independent assurance that would be required. This is the problem. If investors are going to encourage or insist on companies producing integrated reports they will also want assurance that what is reported is reliable and trustworthy. In a world purely made up of financial reporting this was relatively easy. That was hard data and information and could be reasonably accurately pinned down. Integrated reporting inevitably is made up of softer information.

But assurance is going to be needed to take the concept to the next stage of its journey. Druckman is adamant that it cannot be a compliance regime. That would squeeze the life out of the value of integrated reporting. ‘We need codes and regulation’, he says, ‘not rules’. It is going to be difficult. Creating a level of credibility and trust around reports which are dependent on methodologies will be problematic. But Druckman and the IIRC, as they have throughout this journey, are listening, shaping the myriad views they are receiving, and looking for a rough consensus. And that, in keeping with the purpose of integrated reporting, will be a long-term process.

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