The <IR> value creation model: a reference point for 21stcentury corporate governance
Speech by Richard Howitt, Chief Executive Officer, International Integrated Reporting Council, at IIRC-ICGN “Dialogue for longer-term value creation” Conference, London, Wednesday 7 December 2016
Thank you Kerrie. A privilege to be here in this new role and I pay my own personal tribute to my friend Paul.
The King IV Code in South Africa, 300 Integrated Reporting companies in Japan, the Ministry of Finance signing up in China, IIRC is truly making global progress.
Last night we talked about a broken system, a loss of trust, the rise of populism, the need to reform capitalism. Big challenges that need clear answers.
Clear thinking, integrated thinking.
And Integrated Reporting may not be the answer on its own to all those challenges, but it sure is an indispensable part of the answer. And if we’re about connectivity, that has to include connecting with people who themselves feel disconnected.
Last night’s message of inclusive capitalism.
And in our new video, we’ve tried to give that message in less than three minutes. We say corporate reporting should be concise and relevant. And we try to practice what we preach.
Kerrie, Eric, thank-you for being our partners at this conference.
The IIRC is a powerful coalition and many of our key partners have travelled here from all around the world to be part of this exceptional conference. And I thank-you all. But ICGN have shown yourselves to be key partners too, in the way we are jointly conducting this conference. Truly of a like mind.
A joint statement we’ve released to underpin the conference.
With a common language of:
“Reaping the benefits.”
“Investors as stewards.” “Better insight.” And the following joint declaration:
“A company which understands how its business enhances or depletes its resources, is better placed to govern itself effectively, and to be a more sustainable business.”
That’s why we’ve chosen to do this together.
And I want to use this introductory speech this morning to challenge two popular myths, that are holding us back.
The first is that company structures and culture is so diverse between different countries and jurisdictions, that it is impossible to pursue the shift to long-term value creation through global efforts towards corporate governance.
The second is that investors are so implacably opposed to anything other than short-term financial return, that they are the insuperable obstacle to any shift towards long-termism.
In truth, we have all heard those statements, and if we are to make progress, we have to challenge them. First, Corporate Governance. The very raisin d’être of ICGN is global progress on corporate governance. You’ve been doing it for over twenty years. This year you launched your Global Stewardship Principles, which included Principle 6 in favour of long-term value creation and specifically encouraging companies to publish integrated reports.
And in different jurisdictions those principles might be contained in corporate governance codes, stewardship codes, sometimes company law, or sometimes simply as a reference point for active investors. But we say Integrated Reporting can be accepted as a principle of 21st century corporate governance.
And for any of you who question this – who wants bad governance?
Lack of forward-planning.
Failure of oversight.
Absence of strategy.
In my contention, certainly not Company Boards. Board members want their companies to be sustainable in the long-term. Their management and their business strategy to have the the widest appreciation of risks and opportunities.
Boards appreciate more than any other level within the company, the importance of trust and reputation. Boards want ‘integrated thinking’ whether they use that particular term or not. <IR> is about better reporting but not as an end in itself, but to help create the better corporation. And that’s precisely what corporate governance movement seeks to achieve. So Corporate Governance is a powerful tool to pursue the shift to long-term value creation and this conference says we can and must use it.
I won’t describe the pressures or repeat the statistics about excessive short-termism. Again, we all know the case. But to say the investment community hasn’t begun a fundamental process of change is plain wrong.
More than 1,500 signatories to the UNPRI, in over 50 countries.
Nine major asset owners in Focusing Capital on the Long-term, representing $6trillion assets under management.
Major investors including Newton Asset Management, CalSTRS, Schroders, Florida State Board of Administration and BlackRock, all at this conference.
As we highlighted in our report ‘Integrated Reporting and Investor Benefits’, an EY study has concluded that out of 200 institutional investors surveyed, 70% consider Integrated Reports essential or important when making investment decisions.
The Harvard Business School research drawn from a sample of 1,066 companies practicing Integrated Reporting concluding that “more <IR> is associated with a more long-term investor base”.
Now I know we live in an era in which it is suddenly legitimate to peddle post-truth and to dismiss experts for their knowledge. But forgive me if I stick to that old-fashioned notion that is important to test your assertions against facts. And the fact is Investment is changing and we can and are working with the investment community to make it happen.
That is the second message which should be heard loud and clear from this conference.
The purpose of this conference is to forge a new and better dialogue between businesses, investors and other market participants. To challenge the status quo and to challenge each other.
We bring a framework to the table – tried, tested, evidence based. And our networks are open to all of you for your participation because we want to create a global movement for better reporting. A global movement which will become tomorrow’s global norms.
Is this all possible?
Over thirty years ago when I learnt to drive, my driving instructor said to me: Don’t look at the bonnet, look ahead. And he did that to help me avoid accidents and to reach my destination safely. And that remains true today whether you are steering a car or steering a business.
If we are refashioning the global economy, perhaps it is best to use simple principles to do so. So – look ahead to drive safely.
And thank-you for listening.