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The Bruce Column — Pushing stakeholders towards value creation and the long term

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09 Feb 2017

Robert Bruce, our regular, resident, columnist reports on moves towards widespread adoption of integrated reporting and the direction taken at the recent joint conference of the International Corporate Governance Network and the International Integrated Reporting Council.

For integrated reporting this year is intended to be a time of strategic initiatives aimed at making the reporting system a principle of corporate governance for the future and a catalyst for a more cohesive reporting system. There is a series of themes developing. There is the question of global adoption of the integrated reporting framework across all sectors; greater technical support to increase the quality of integrated reporting practice; being a catalyst for corporate governance change in the capital markets; facilitating greater alignment of the corporate reporting system; and bringing the concepts of integrated reporting to bear on the policy and regulatory environment. All of this will play out over the year ahead. And these themes were echoed at a gathering late last year where views were shared and the scale of change assessed. 

It was Mervyn King’s words in the opening sessions of the recent joint conference of the International Corporate Governance Network and the International Integrated Reporting Council which brought the most influential sense of change.

King is the guru in such circles and later in the proceedings he was given the ICGN lifetime achievement award. In his opening remarks he emphasised the rapid rate of progress that had been made in recent years. ‘You will not see the word profit in the conference programme’, he said. ‘We have moved from profit to value creation’. And this theme ran through the whole conference.

His words were backed up by the annual global survey* from consultancy Black Sun released during the conference. ‘There is strong indication from executives that attitudes concerning business and stakeholder value creation need to change and that organisations must deliver a purpose beyond profit’, was how it summed it up. ‘Shareholder returns will, as expected, remain crucial for business, but other factors, such as meeting customer expectations and inspiring and engaging people, will significantly grow in importance. Working for the longer-term is cited as preferable over the short-term, and doing this is thought to bring significant internal and external benefits’.

It is a world moving away from narrow measures. Mervyn King made it clear that the traditional financial measures were not up to scratch. For him the importance was that the corporate world should move from ‘the plague of short-term profits to value-creation in a long-term manner’. And, for most people at the conference, this meant properly run companies using the wider models of integrated reporting.

In his opening keynote address the former managing director and CFO of the World Bank, Bertrand Badré, reinforced this: ‘As we continue to struggle in the aftermath of the global financial crisis it remains crucial to focus on tools and practices that can make a difference and contribute to restore trust in the market economy system. Proper corporate governance and integrated reporting can help to achieve this’.

The research from Black Sun amongst senior executives around the world backed this up. ‘Executives also believe that bringing financial and non-financial information together enhances business performance and corporate reporting, but many executives say that their organisations lack reliable tools and techniques for doing this’, it reported. ‘Improved reporting, particularly Integrated Reporting, is viewed by many as a potential driver for future value creation, improved reporting and enhanced business’.

But during the plenary session on aligning the capital market system for the current century’s needs the amount of disconnect between what was actually happening and what it was felt ought to happen became plain. Two votes during the session summed it up. 70% of those voting supported the idea that corporate governance was ‘essential’ for the reform process. David Pitt-Watson, guru in the field of responsible investment and business practice and co-chair of UNEPFI, the UN Environment Programme Finance Initiative, and who headed up the session, agreed but was sceptical that this was a widely held view in the world outside. ‘I have never heard any western leader say that corporate governance is central to the economic system’, was his comment.

The next vote was on which corporate governance issue was the most important one to concentrate upon. Again there was disconnect. Recent Government pronouncements have focused on pay and incentives and the composition of corporate boards, yet these issues attracted just 9% and 5% of the vote. The overwhelming favourite, coming in at 68%, was for getting boards to focus on long-term value and the significance of stakeholder interests. For Jane Diplock, director of Singapore Exchange, this vote essentially squared the circle. ‘It’s about integrated thinking’, she said. ‘It is all about getting businesses to think about their stakeholders as well as their shareholders’.

And the world of integrated reporting has been testing out the views of its stakeholders too. The recent IIRC survey found that 87% of respondents strongly agreed or agreed that integrated reporting promoted ‘a more joined-up and efficient approach to corporate reporting’. The question for the year ahead is how far such views can stretch within the wider market.  It is a great aspiration but it remains to be see whether it is a universally shared one.

* ‘The Value of Value: Board-Level Insights’ is an annual survey of C-Suite members from across the globe, carried out by consultancy Black Sun, which looks into the value of value creation stories inside boardrooms. This year’s edition - ‘Purpose beyond profit’ – was conducted in partnership with AICPA, CIMA and IIRC, with the aim of gauging executives’ views on how their organisations understand, manage and communicate value creation.

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