Untangling interdependencies
It’s time to talk about integrated reporting again because the deadline for submitting comments to the IIRC discussion paper on integrated report is nearly upon us. Proponents and challengers of integrated reporting alike must send their thoughts through by Wednesday 14th December.
The IIRC do a great job on their discussion paper website explaining why integrated reporting matters, clearly making the point that the current reporting model doesn’t explain critical interdependencies and that disclosure gaps remain.
www.discussionpaper2011.theiirc.org
Integrated reporting as they see it:
“…brings together material information about an organization’s strategy, governance, performance and prospects in a way that reflects the commercial, social and environmental context within which it operates. It provides a clear and concise representation of how an organization demonstrates stewardship and how it creates and sustains value. An Integrated Report should be an organization’s primary reporting vehicle.”
Whilst we agree with the essence of this, we can’t help thinking there are a few interconnected elephants in the room that need acknowledgement, as they’re fundamentally holding back progress on integrated reporting. They are:
- Companies aren’t in sufficient control of the interdependencies inherent within their business and don’t feel comfortable highlighting that fact in their reports
- The interdependencies are complex and ever-changing making it difficult for business leaders, let alone readers of annual reports, to get their heads around
- When interdependencies are so intertwined everything seems material, so writing a shorter less complex report, as most stakeholders are calling for, seems something of a far off dream
But we can’t off course just give up because it seems too hard. There’s a chart that The IIRC use in their discussion paper website that explains exactly why not. It’s brilliant:
The World has changed reporting must too
It shows how in 2011 compared to 1975, Standard & Poor’s place diminishing importance on physical and financial assets as principle indicators of value. Only 19% of value is calculated based on physical and financial assets in 2011, compared to 85% in 1975.
So if a business wants to be recognised for its true value, it needs to get disclosing and furthermore untangling for its stakeholders the many interdependencies that impact its strength.