<IR> perfect tool for CEOs to align with Larry Fink’s vision

Posted
8 February, 2016

Larry Fink, the CEO of the world’s biggest investor, BlackRock, has written to the Chief Executives of S&P 500 companies and large European organizations. His letter sets out a vision for tackling short-termism, urging companies to report on their strategy. In his letter, he reiterates that it is the responsibility of the board “to review, understand, discuss and challenge a company’s strategy.” This powerful call for change is a perfect example of what the IIRC is trying to achieve through the global introduction of Integrated Reporting. Commenting on the letter, Sandra Peters, Head of Global Financial Reporting Policy, CFA Institute said, “Efforts by the International Integrated Reporting Council to develop a framework for reporting value creation seem very much in-line with what Mr Fink is suggesting.”

The primary purpose of an integrated report is to improve the quality of information available to providers of financial capital by communicating broader and more relevant information that can assist in effective capital allocation decisions. And as Larry Fink says in his letter, “one reason for investors’ short-term horizons is that companies have not sufficiently educated them about the ecosytems they are operating in, what their competitive threats are and how technology and other innovations are impacting their businesses.”

Larry Fink asks that “every CEO lay out for shareholders each year a strategic framework for long-term value creation.” Companies all over the world are already using the International <IR> Framework to communicate their value creation story over the short, medium and long term. We call on companies to respond to this letter by using Integrated Reporting to ensure their business is communicating a clear, concise, integrated story that explains how all of their resources are creating value.

The <IR> Framework is explicit that “those charged with governance have ultimate responsibility for how the organization’s strategy, governance, performance and prospects lead to value creation over time.” Companies that move towards Integrated Reporting are in a prime position to comply with Larry Fink’s statement that CEOs should explicitly affirm that their boards have reviewed the strategy of the company.

Michelle Edkins, Managing Director & Global Head of Corporate Governance, BlackRock is a valued member of the IIRC Council whose contribution to developments in governance and corporate reporting are widely recognized.

This letter is yet further evidence that investors are taking more than financial information into consideration in their investment decisions. The world’s largest investor has sent a clear signal to leading businesses around the world – the time is now to evolve your reporting structures. Only then, as Larry Fink puts it, can shareholders “put your annual financial results in the proper context.”

This letter was reported by Business Insider on 2 February 2016.