Integrated Reporting (<IR>) supporters have called for more dialogue between company boards and their investors as a way to produce higher quality disclosures and a more informed capital market.
The comments, which were made at a recent roundtable hosted by the International Integrated Reporting Council (IIRC) and corporate communications agency Black Sun, reflected recently published research showing businesses, particularly those in the IIRC’s Pilot Programme, are actively seeking input to help raise the quality of board discussions and decision-making.
Hermes Equity Ownership Services director Tom Rotherham said investors and businesses need to be "on the same page" in order to achieve a commitment to long-termism and that integrated reporting could help provide a better basis for discussion than current corporate reports.
According to Rotherham, implicit in what is needed is recognition by companies and investors that financial performance is a necessary but insufficient component of long-term success: the focus of a company should be to create value.
He recommended businesses prepare for discussions with investors by defining how they create value, understanding key risks and setting out how these will be addressed. While investors should consider whether capital markets can be efficient in generating long-term returns without the active participation of owner-investors.
IIRC chief executive Paul Druckman thinks this behavioural change will lead to better quality corporate reporting.
"We are witnessing a fascinating change in the mindsets of some of the world’s leading businesses and investors. Ultimately, this will lead to the adoption of a new language for communicating how value is created by businesses. This language is Integrated Reporting, he said.
"This is the first generation of business leaders dealing with the reality of living within planetary limitations. The global economy is increasingly underpinned by the value of knowledge and people, yet the standards and rules governing corporate behaviour haven’t yet caught up with this new reality. The fact that investors and businesses are working together to inject much needed innovation in our reporting systems and processes demonstrates that market mechanisms can help to drive a change in thinking and behaviour that will improve decision-making and the operation of the capital market".
Overall participants in the roundtable were confident the IIRC’s <IR> framework, due to be issued in 2013, will lead to a more comprehensive dialogue between businesses and their investors.
International Integrated Reporting Council