Creating value for the board

Corporate reporting, and the thinking that has to accompany it, are boardroom issues. This is where strategy, performance and the development and communication of long-term value are best understood, aligned and led. This view is endorsed by the International Corporate Governance Network (ICGN) whose revised Global Governance Principles now include the recommendation that boards should produce an integrated report.

Boards are increasingly pursuing long-term strategies that integrate wider sources of value creation. This will incline them towards an <IR> approach; it is becoming a natural part of boardroom thinking to report organisational performance in relation to long-term value creation – a need and intent that is aligned with the International <IR> Framework.

There is increasing evidence too of the benefits boards can gain from adopting <IR>.  For example, as PwC research shows, the broader reporting focus of <IR> can lead to investors gaining more confidence in their analysis and a better understanding of the links between goals, risks, KPIs and financial statements. This could ultimately lead to a financial impact on the cost of capital.

The latest IIRC research conducted by corporate communications consultancy Black Sun identifies both external and internal benefits. Among organisations piloting the <IR> Framework, 91% have seen a positive impact on external engagement with stakeholders, including investors; 92% have a better understanding of value creation; and 79% report improvements in decision making.
We live in an age of transparency. <IR> is, at one level, a strategic response to the challenges of operating successfully within modern society. It is also about doing the right thing. The recent report Tomorrow’s Business Success, poses the question, “Why would a company not want to be trusted?”.

In a series of questions in a toolkit questions for boards to discuss include:

– To what extent do we have a shared understanding of our business model and how we create value?

– Do we understand the connection between different value-adding activities and the decisions made?

– To what extent does our current reporting adequately describe our business model and how we create value?

These are questions that sound simple but can lead to in-depth discussion.

Many leading companies already understand the value of <IR> and they are embracing it as a practical means of telling a compelling story about how they are creating long-term value and so contribute to the greater good, not only in pure business terms, but also for society at large. Their leading practices will inspire others to follow.

These ideas are set out in our new publication Creating Value: Value to the board. Through this, which is the first in a series, we aim to highlight trends and research demonstrating the power and relevance of <IR> and share the views of those already on the <IR> journey.