As part of my journey to using a more fully “integrated” framework of the capitals that form the foundation of today’s companies, I attended three conferences in the last month (phew!). They came in quick succession and I’m still digesting it all. But I promised a number of people in our community that I would share some impressions. Here are some first thoughts with more to follow.
I’m going to start by sharing what I learned at what was billed as the Official IIRC Convention. The one-day meeting included good mix of corporates doing IR, representatives of professional bodies (IIRC, CIMA, GRI etc) and different kinds of advisors. There was no attendee list which seemed strange to me but may be a European thing. My view is that these are the early days of the movement and there would be value in building the network, letting people know who else is interested.
One of the key sponsors was CIMA which shared their FM Magazine Leadership Special Issue (available for download at Amazon). Released at the conference, there was a great history of integrated reporting going back to Nelson Mandela in South Africa. The article explains that Professor Mervyn King, considered the architect of the <IR> movement:
Came up with the concept after being asked by Mandela, who was soon to be elected president of South Africa, to redraw the nation’s corporate governance system for a society starting to emerge from the fast-crumbling apartheid regime.
The first steps were to address sustainability but “the problem was that firms started doing this completely separately from financial reporting.” This led to the concept of reporting holistically about value creation including all of the six capitals. The work of the King Commission was picked up by the UN and eventually led to a summit convened by the Prince of Wales that included standards boards from around the world. The IIRC was born out of this effort.
The movement is now to the point where some 1,000 companies around the world produce integrated reports. This is tiny on a percentage basis but more and more companies are beginning to talk about integrated reporting and what it might mean for them. At this conference, there were over 180 people from 24 countries. There was a good mix of vision, theory and practice. There were some great stories from corporates like Nestle, Generali, DBS, Enagas, all of whom produce different kinds of internal and external reporting which may or may not be called an “integrated report.”
Just a few ideas that stuck with me:
- In a panel on investor decisions, there was a powerful message that the money invested in companies can be traced back in large measure to savings and pensions. This means that the investment goals are long term in nature. But the predominant outlook and management of these funds does not take the long term into account. This is a natural starting point for discussions about <IR>.
- There were many calls for comparability but also insistence that the capitals are examples and should be flexible (my position is that every company has these six capitals which is a start toward comparability)
- Focus on "capitals" which implies a stock but use of impact metrics (inputs, outputs and outcomes) that measure flow (I think this comes from the sustainability movement and in my view will need to be adapted; this kind of impact analysis is not long term in focus).
- The capitals discussions mostly skimmed over the discussion of internal intangible assets (called intellectual capital in the IIRC model). The one formal mention I saw from a panel focused on intellectual property and R&D (most people are still missing the processes, data and knowledge that provides the core infrastructure of every company).
- In a sea of talk about KPI’s, some interesting examples of qualitative measurement (one of my favorite topics). In the integrated thinking discussion, the panel used clickers for immediate audience polling and real time qualitative data. Jones Lang Lasalle told the story of how they used qualitative data from stakeholder interviews to inform quantitative analyses. If you’ve known me for any length of time, you’ll know that I believe that qualitative is part of the future of integrated thinking, if not integrated reporting (the easiest way to know whether you’re meeting your stakeholders needs is to ask them).
- Nevertheless, I was less thrilled to see frequent use of stakeholder feedback as a basis for judging what's material for reporting. For me, materiality should be tied to a company’s value creation ecosystem, which the capitals are perfectly designed to address. There was a lot of talk about differing materiality standards. As is often the case in life, it depends on the context.
Bottom line, there’s a lot of interesting work being done internationally. What does that mean for U.S. companies? I’ll take that subject on in my next post.
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