The IIRC was founded in 2010 with the goal to provide tooling, modeling and thought leadership to represent how companies around the world work and measure success in the 21st century. The goal was to create a globally accepted framework for a process that results in communications by an organization about value creation over time.
With trust in business today at all time low, data breaches jeopardizing relationships on a daily basis, a new major climate report sending another stark warning about our biggest challenge, employee engagement declining around the world, and financial outcome representing less and less (<15% today) of a companies value and assets, new concepts and approaches are needed more than ever. Yet, our decision making today is still based on financial tools only. Innovation leaders recognize that value is about more than just financial outcome.
Recent research studies conclude that the practice of integrated reporting leads to ‘….increased stock liquidity, better performance, higher market valuation and a longer-term investor base for the businesses that adopt it’. Leading companies practicing integrated reporting also started going beyond treating natural and/or human capital simply as a liability on the balance sheet, instead we see promising examples of profit & loss accounting and connectivity to financial outcome. Same goes for relationship capital.
In our IIRC gathering last week in Paris several significant milestones were announced :
Moving from ‘Breakthrough’ to ‘Momentum’ phase.
Over 1,600 companies in 65 countries are using our emerging form of reporting to communicate a clear, concise, integrated story. It is helping businesses to think holistically about their strategy and to manage keys risks. Based on this success the IIRC is moving into a new phase – ‘the Momentum Phase’. It includes advancing integrated thinking as part of corporate governance reform, facilitating alignment in the corporate reporting system and accelerating adoption in the United States and China.
Integrated Thinking Working Groups
In Paris we hosted the newly formed ‘Integrated Thinking & Strategy’ group, now with over 35 companies from around the world gathering together to reshape the rules for business in the 21st century.
We define integrated thinking as balancing a company’s decision-making process across financial, social, human and natural capitals; though fast growing, it is still developing as a nascent discipline. Companies are adopting these ideas, but in disconnected ways. We recognize the need for momentum in this critical area and have formed a group of strategic thought leaders to drive progress.
We are in the midst of kicking off a US chapter of the ‘Integrated Thinking & Strategy’ group. If you or your organization is interested in joining, please contact us.
Changing of the guards
Dominic Barton, Senior Partner and former Global Managing Partner at McKinsey & Company, has now taken over as chair of the IIRC. Previous chairman Prof. Mervyn King will stay on as chairman emeritus.
Quick summary of Prof. Mervyn King’s comments and my own conclusions from our gathering:
Milton Friedmans outdated mantra that the ‘…only purpose of a business is to increase profits for its shareholders’ was made under the wrong perception that we live in a world with infinite resources. We know today that this is not the case. Success in form of increasing share price and profits always comes at a cost and is subsidized by the environment & society carrying those costs. The heart, mind and soul of a business is in its leaders. Without conscious leaders respecting all forms of capitals a business cannot become a good corporate citizen.
In the words of Prof. Mervyn King we are ‘…in the century of intangible assets’, ‘…in the century where asset managers ignore financial statements altogether’, ‘…in the century with great technological advances’, where the elected mind of a company board should be a unified as one that finds unified answers to simple questions like ‘What is the purpose of my business?’, ‘What is the value driver of my business’, ‘What are the legitimate expectations of my stakeholders?’, ‘What are the TOP 5 key risk indicators/key performance indicators ?’, ‘Who are my stakeholder groups?’. Ask these simple questions in your next board meeting. Chances are you get very different responses from each member.
Companies can and should take their own steps to be ready for 21st century demands without the need to wait for legislation to come through. It still is worth noting that India, Japan, Singapore, South Africa, Brazil as well as the European Union already provide legislation to advance integrated reporting and thereby promote integrated thinking. Hopefully the US will take notice and follow suit soon. It is needed.