The 21st Century has witnessed a
rapid increase in the debate about the ability of the current reporting model
to provide a fair reflection of an organization. Growing in importance is the ability of reports
to provide information on the impacts a company has on its stakeholders,
society, and the planet. The World
Economic Forum Global Risks Report (2020) indicates that, long-term risks
facing businesses are for the first time environmental and should be
communicated to stakeholders. Current reports are silos presented and only a management that is divorced from reality may think such reports are
sufficient for informed assessments. Some of the governing tools such as NamCode and King IV recommends for
organizations to strengthen their reporting models and stakeholders`
relationship to achieve the organizational outcomes.
With a determination in improving
organization reports, the International Integrated Reporting Council (IIRC) in 2013 launched a
framework on Integrated Reporting (IR) that outlines how companies
can meaningfully engage with all stakeholders and disclose all relevant
information. The information includes both good and bad while observing the principle of confidentiality.
IR is globally accepted as the best
mode for businesses to provide investors and other stakeholders with a more
holistic approach to reporting both financial and non-financial results.
Ironically, the adoption of integrated
reporting continues to grow, but some public and
private companies are still hesitant in implementing IR. It is yet the right
time to consider IR, as the just-ended month of March marks the end of
financial years for many organizations and as you are reading this article probably
most entities are busy preparing their annual reports.
The desire to promote
financial stability and sustainable development by better linking investment
decisions, corporate behavior and reporting has become a global need. This is to say; the reason for an entity not
to implement IR will be of much interest. Integrated reporting is a process
initiated on integrated thinking that results in a periodic communication
(report) by an organization about value creation over time. A good Corporate
Citizen will concisely communicate to their stakeholder on how the organization’s
strategy, governance, performance, and prospects, in the context of its external environment lead to the
creation of value in the short, medium, and long term.
In as much as IR is a new generation of
annual reports and is voluntary, it also acts as a catalyst in complying with statutory regulators such as the Namibian Companies
Act (Act,28/2004), the Namibia Stock Exchange (NSX) Listing Requirements, and
International Financial Reporting Standards (IFRS). Its framework is
designed flexibly to allow implementation by both public,
private, large or small, for-profit or not-for-profit organizations.
Generally, few entities fully
adopted the integrated reporting framework. One of the perfect examples is Capricorn
groups; their reports for 2017 and 2018 scooped the Regional Company Award at the
Annual Integrated Reporting Awards hosted by now renamed Chartered
Governance Institute of Southern Africa (CGISA). Despite this notable achievement,
many organizations are struggling with some important
principles and content elements of IR. It is important to note that, for a
report to be regarded as an integrated report; it should cover the following
fundamental concepts of integrated reporting:
- Value creation. The creation of value in a sustainable manner.
- Capital or resources. Six capitals are financial, manufactured, intellectual, human, social and relationship, and natural. It is inconceivable to think that companies should continue focusing on a wealth creation of shareholders only while there are myriad of inputs affecting company outcomes.
- Business model. The business should narrate the business model of a company that will generate value in the future.
Governing
bodies should understand that IR is not aimed at replacing the normal Annual
Financial Statement or Annual Report as required by different regulators, but
an additional report, which provides meaningful information regarding business
value creation in a sustainable manner. IR can be prepared as a standalone report or be included as a
distinguishable part of other existing reports although stand-alone is highly
recommended.
At its most fundamental level, the integrated
reporting movement emerged to help restore trust and confidence in company
disclosures, and to give shareholders that all-important authentic view of
performance. It helps in understanding how
businesses are addressing their current and future challenges, how they employ
their resources and relationships to create value in the long run. With IR, corporate Leaders
will be more involved in integrated thinking and they will gain a better understanding
of enterprise risks; a stimulation of thinking which does not exist with the historical
financial statements.
All
we need is a change in mindset at the board and senior
management level to accept that there is an interrelationship between the use
of resources by the company and the company’s relationships with its
stakeholders, hence a need to report on them. Board members should know that among their fiduciary
duty is to ensure that organizations prepare a concise communication
(Integrated report) to their stakeholders. Company secretaries as gatekeepers of
good governance should ensure that integrated reporting forms part of the boards`
agenda at an early stage and not a last-minute action.
Integrated
reporting remains a key factor in promoting good corporate governance. Institution
should break the information gap by implementing IR. It will be a milestone in
governance to see organization be it State-Owned Enterprise (SOEs), Public,
Private, Trustees and Non-Governmental Organizations (NGOs) embracing
integrated reporting framework.
Ironically,
integrated reporting is not really about reporting at all. It’s about
integrated thinking, responsible business behavior and innovation
BY
By:
Onesmus K Joseph - ACIS/BAP/CFIP/PPL
MPHIL Candidate - KNUST (Kumasi; Ghana)
Governance Professional
josephonesmus@yahoo.com
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