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Blog : BOARD TALK

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Follow dinamedland on Twitter       A blog around the issues facing the boardroom...in the UK and around the world. I aim to reflect a wide-ranging set of views and kindle ongoing and much-needed debate. The aim is for more 'board talk' and less 'bored talk'.  

July 28, 2013

"Thought provoking, insightful and challenging – Board Talk is now the ‘go-to’ commentary on boardroom issues'

Vanda Murray, OBE  (and non-executive director, now Chairman Fenner plc - 2017)

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Take The Time To Give Us Better Strategic Information For The Boardroom, Say Directors

Posted on April 26, 2017 at 3:30 PM

Any good journalist knows that less is more, when it comes to using words to good effect. It is a lot harder to say something meaningful in 800 words than in 2000 - and a lot more effective as well.


So why does UK plc send its directors into the boardroom groaning under the weight of the number of words they are expected to read and digest, never mind the archaic practice of using bundles of paper ?


This blog reported on Smart and Green Boardrooms way back - in 2011. "And as boards become smarter, they are also (at last) coming into the 21st century with their chosen means of communication. In 2011 it should be unacceptable for a chairman to cite 'confidentiality' as the reason for board papers to go by courier" I wrote.


But research just out from Board Intelligence, the London-based board perfomance specialist, finds more than half (56%) of board members surveyed saying that their board pack has grown to an average size of at least 200 pages, with some packs weighing in at around 1,000 pages. (my emphasis).


They must be kidding. But no, directors reported that they are spending 33% more time reading their packs in preparation for board meetings.


Board Intelligence (@boardintel on Twitter) polled board members from over 60 organisations, including directors of FTSE 100 and FTSE 250 companies, privately-owned businesses and public sector organisations, repeating a study it first ran, as it happens, when I wrote that blog post - 2011.


Directors may be spending more time wading through the paper, but it does not necessarily prepare them for strategic discussion.


The length of the packs is said in part to be because compliance and regulation are blamed as dominating the agenda. But that sounds like a bit of an excuse to me - particularly as the study finds that nearly three-quarters (74%) of respondents whose packs had not grown in size noted that they felt they had a greater focus on strategy. Maybe that's because they actually read them?


Board Packs, like Topsy, have grow'd. But that is surely because it is the bureaucratic answer to increased risk, not the strategic one.

Source: Board Intelligence, London April 26, 2017


Board Intelligence says 84% of board members surveyed are calling for more succint and re-focused board packs.


Yes, it is true that providing those very things is its raison d'etre. But the company's arrival on the boardroom scene was a welcome response to a heartfelt need at the time - I remember it well. They offered a sharpness often missing in consultancies that prefer to mystify, rather than de-mystify, the boardroom. They are also allergic to jargon. Their research seems to be an accurate reflection of the gap between the reality of what is needed and what is being used by plcs.


"Board papers are getting longer and much goes unread - we are waiting for the next corporate scandal to happen" says Pippa Begg, a founding Director of Board Intelligence.


"We either need to be much more realistic about what directors can achieve and pare back expectations of their role, or they need to spend vastly more time on the job at hand - or organisations need to start to take their board packs a lot more seriously and ensure they cover all of the information that Directors need, in a readable number of pages" she adds.


As Ms Begg puts it: "We shouldn't have to wait for failure for this to become a priority."


It's time to remind businesses and chairmen of that great quote attributed to Winston Churchill, which I used in 2013 to talk abouit integrated reporting on Forbes: "If I had more time, I would have written a shorter letter." - a startling 20,503 hits and still rising.





Latest On Dividends From UK plc (In Context)

Posted on April 24, 2017 at 12:15 PM

Dividends. It might be time to start thinking about them in a wider context for UK plc. Hint: think pensions at the same time.


2017 saw a brisk start for UK dividends, according to the latest UK Dividend Monitor from Capita Asset Services, which provides infrastructure, services and expertise to clients across the capital markets.


The headline figures are impressive, but growth was rather narrowly based, it says. It depended heavily on large exchange rate gains, and a stronger-than-expected rebound in BHP Billiton’s pay out. Meanwhile, a steep decline in special dividends took the shine off the headline rate.


Overall, UK dividends rose 9.5% year-on-year in the first quarter on a headline basis. The £15.4bn total came despite a 90% decline in special dividends to just £110m, their weakest quarter in almost six years. After the huge haul of specials in 2016, a normalisation this year was on the cards. Even so, the fall in the first quarter was twice as large as Capita had pencilled in, and knocked five percentage points off the headline growth rate.


The data shows that exchange rate factors easily offset the special-dividend effect. The first quarter is the most heavily skewed towards dividends declared in foreign currencies, accounting for three-fifths of the total distributed, compared to a little over two-fifths for the year as a whole. The pound’s weakness yields exchange rate gains when UK multinational profits earned overseas are repatriated and paid out in dividends, says Capita.


Over the quarter, exchange rate gains added £1.7bn to the total, equivalent to an astonishing 12 percentage points on the headline growth rate. (my emphasis)


BHP Billiton, which had cut its dividend deeply in 2016, single-handedly accounted for 3.5 percentage points of the headline growth rate.


So....on an underlying basis, which excludes special dividends, the year-on-year increase was a dramatic16.2%, taking underlying dividends to a first quarter record of £15.3bn.


"Without the combined effect of foreign exchange movements, and the unexpectedly large boost from BHP Billiton, however, underlying dividends would have fallen slightly year-on-year, indicating that sustained, core growth is still hard to come by" says Capita (my emphasis).


Of the main industry groupings, oil, gas and energy, resources and commodities, consumer goods & housebuilding, and telecoms performed best. Retail & consumer services and healthcare & pharmaceuticals fell, mainly owing to lower special dividends. At the more detailed sector level, 11 sectors out of 17 paid more in Q1 this year than last.


Source: Capita Asset Services - London

With grateful thanks to Exchange Data International for providing the raw data April 24, 2017


Capita Asset Services expects underlying dividends to rise 7.7% to £84.6bn this year, with three quarters of that growth coming from sterling’s weakness. This is based on the assumption that exchange rates do not change. Headline dividends will rise only 2.8% to £87.1bn. This is £0.4bn lower than Capita’s earlier forecast, owing to the weaker-than-expected special dividends in the first quarter.


“UK plc delivered a record for a first quarter, at least before the big drop in special dividends was accounted for. But the sugar rush of exchange rate gains won’t leave investors feeling satisfied for long. It’s going to wear off quickly in the third quarter, unless there is a second leg downwards in the pound. That cash is of course real, at least in sterling terms, but only long-term profit growth can deliver sustainable increases in the income from shares. Unfortunately, profit growth has been rather meagre from UK plc of late" said Justin Cooper, Chief Executive of Shareholder solutions, part of Capita Asset Services.


It might be interesting to overlay this information with the statistics on UK plc pension deficits. As I wrote last year on Forbes, It's About My Pension, Stupid - Pensions Are A Corporate Governance Issue. Pension schemes in deficit and rising dividends should pose challenging questions in boardrooms.


Earlier this month - as covered here on Board Talk - research from JLT Employee Benefits , one of the UK's leading pension and employee benefit consultancies found that 23 FTSE 250 companies would need a payment of more than two years’ dividends in order to settle their defined benefit (DB) pension deficits in full, which is worth £4.7bn collectively.


Pethaps it's time we said "dividends, but..." instead of just shouting DIVIDENDS.




Hermes To Vote Against Re-Election Of Nomination Committee Chair At Rio Tinto plc Due To Lack Of Progress On Diversity

Posted on April 11, 2017 at 12:25 PM

It's the Rio Tinto AGM tomorrow - and Hermes Investment Management intends to put its votes firmly behind stated policy on gender diversity as a priority.


"Due to the lack of diversity and a credible plan to address this imperative issue, and consistent with our voting policy, Hermes EOS recommends voting against the re-election of Jan du Plessis in his capacity as chair of the nominations committee at Rio Tinto plc" it says in an engagement note. (my emphasis)


"Diversity is an issue of great importance,and it will be a key area of focus in our voting activity throughout the AGM season. Earlier this year Hermes EOS wrote to the Chairs of Boards of FTSE 350 companies and announced our intention to support the long-term aspiration that company boards, and all levels of management, should reflect the diversity of society across dimensions such as race and gender.


Therefore, we have taken the decision to vote against the re-election of the chairs of the nominations committees of FTSE 100 companies if their boards have fallen significantly short of the target that 25% of directors are women by 2015 and they are unable to demonstrate credible plans to achieve the 2020 target of 33%. Support for these targets was announced by Government in 2010 and while progress has been made at many companies in the years since, others have fallen behind.


Following changes to the board earlier this year, including the appointment of three male non-executive directors, only two out of the 12 Rio Tinto board directors are women, which falls significantly short of the 25% target. Although the company has stated its commitment to diversity and to seeking to ensure better gender balance in future appointments to the board, we believe Rio Tinto must demonstrate a credible plan and a serious commitment to reaching the 33% target by 2020" says Bruce Duguid, Stewardship Director within the Hermes EOS team at Hermes Investment Management. (again, my emphasis)


The 2017 AGM season also marks the first year of new climate change risk reporting requirements for mining companies Anglo American, Glencore and Rio Tinto. This follows the passing of resolutions last year, with the support of more than 95% of shareholders, requesting further disclosure of carbon-risk reporting and the company’s actions to manage them.


Last year’s resolution, which was supported by Rio Tinto’s Board, prompted the company to prepare a special publication on its approach to managing climate change risks, which was published on 10th March. The report includes details of the company’s greenhouse gas reduction targets to 2020, a description of low carbon scenarios considered and a range of low carbon technologies that the company is investing in.


This year, investors from the Institutional Investors Group on Climate Change (IIGCC) are attending the AGMs of the most carbon-exposed UK companies, including Anglo American, Glencore, BP and Royal Dutch Shell, to welcome elements of the new reporting and identify areas for improvement.


Hermes, which is coordinating IIGCC members’ response to the mining company resolutions, says it welcomes Rio Tinto’s first report.


"However, it is our view that significantly greater information and disclosure is required from Rio Tinto in future to meet investor expectations" it says.


"We welcome the company’s reporting of the low carbon scenarios it considers. However, investors are seeking more tangible disclosure of financial risk, including the company’s estimate of value-at-risk under these scenarios and its strategic response. Further disclosure is needed in order to meet the draft recommendations of the Financial Stability Board’s Taskforce on climate-related financial disclosures (FSB TCFD)" says Mr Duguid.


I last covered the FSB TCFD on Forbes here. Businesses need to start showing how they are adapting their business models.


Rio Tinto's refreshed public policy on climate change "confirms it is seeking a substantial decarbonisation of the business by 2050. We would now like to see details of the company’s long-term strategy to decarbonise its mining and smelting operations, consistent with the Paris Agreement goal to limit climate change to 2°C or even below. This should include the level of investment in low carbon research and development and for stretching greenhouse gas emissions targets to be included in the executive remuneration scorecard" he adds.


It's good to see institutional investors walk the walk - and not just the talk. On a personal note, all my worlds appear to be coming together. As it happens, I see Bruce Duguid is speaking at an event on Systemic Rick and Corporate Governance held at Cass Business School on May 10 - and I am moderating  a panel.


Systemic risk and corporate governance should, in my view, be seen as far more closely aligned in the mind's eye than they have been.

 


Marking Our Values : We Do It In A Tragedy, We Need To Do It Every Day

Posted on April 9, 2017 at 8:30 PM

News soon on this little blog's quest for sponsorship - I had forgotten about the Easter break, so I am aiming for May. But editorial independence will always be paramount, so if it remains unsponsored, I just post less.....it's all about time.


But, flying free of any ties today, I would like to draw attention to two events in the news. One was the extraordinary early press release from Barclays Bank plc. As I tweeted


Most of what I had to say on that is here, in today's post on Forbes: 'Barclays And The Great Corporate Governance Cop-Out: An 'Honest Mistake.'

As of now, it has had over 2,000 views - so I would say something about it resonates.


The other event on the news that caught my eye - and my heart, as it happens - was the funeral for the policeman killed in the line of duty at the #WestminsterAttack. I know his name, as do many hundreds and thousands of people. He was doing his job, Keith Palmer, and he gave his life doing it.


Here is today's coverage of that.


It may seem an absurd comparison - these two events. But I don't think it is, and it might be worth thinking about.


Because we identify with policemen and police women, who risk their lives for us every day and affect how we live.


But we don't identify with senior bods at Barclays Bank plc, even though what they do in a routine day's work (think about LIBOR) - and the #BBCPanorama programme The Big Bank Fix , on now - affects our daily life (think mortgages).


And a reaction from watching Panorama from a respected observer here:


#Panorama #LIBOR scandal: Bob Diamond blamed "a handful of traders" at the 'bottom of the food chain'.— Ann Pettifor (@AnnPettifor) April 10, 2017


It's time we stopped seeing these business men and women as Gods out of normal mortal reach- and judge them on the same standards we use every day, for lesser paid mortals. That might help build a better society.

9% Of FTSE 250 'Faltering Under Pension Debt' - Report

Posted on April 3, 2017 at 12:00 PM

A report just out says that 23 FTSE 250 companies  - equating to 9% of the index's constituents - are "faltering under a worrying amount of pension debt."


Research from JLT Employee Benefits , one of the UK's leading pension and employee benefit consultancies has  found that 23 FTSE 250 companies would need a payment of more than two years’ dividends in order to settle their defined benefit (DB) pension deficits in full, which is worth £4.7bn collectively.


It adds that 12  FTSE 250 companies would need a payment of up to two years’ dividends to settle their pension deficits in ful. But 56 companies could have settled their pension deficits in full with a payment of up to one year’s dividend.


As I wrote on Forbes last November: It's About My Pension, Stupid: Pensions Are A Corporate Governance Issue. So why does it only get intermittent coverage ? Pensions are an excellent example of the overlap between a human concern and financial risk (think ESG - also covered here on Forbes).


Another measure of financial risk posed by DB pension liabilities is its size relative to the company’s equity market value, says the report. Twenty FTSE 250 companies have total disclosed pension liabilities greater than their equity market value. For The Go-Ahead Group, total disclosed pension liabilities are more than four times their equity market value, says the report (my emphasis).


Charles Cowling, Director, JLT Employee Benefits


 “While these metrics don’t capture the entire picture, they are a useful indicator of the pension drag on the sponsoring company. High levels of debts can severely constrain a company’s ability to invest in vital research and development, upgrade its operations and hire skilled staff, affecting its competitiveness and long term prospects. As Brexit has increased the uncertainty around trade regulations and tariffs, being highly competitive is a key success factor" says Charles Cowling, Director, JLT Employee Benefits.


“Shareholders are increasingly aware of the potential disruption that a massive pension scheme can cause to a business and it should be expected that it will weigh the share price down" he adds.


While 9% "may not seem a lot",  the situation in the FTSE 250 is much more serious than in the FTSE 100 which has only a couple of companies with such a pension burden says Mr Cowling.


As at 30 June 2016 the total deficit in FTSE 250 pension schemes is estimated to be £11 billion. Only 41 companies disclosed a pension surplus in their most recent annual report and accounts; 91 companies disclosed pension deficits.


In the last 12 months, the total disclosed pension liabilities of the FTSE 250 companies have remained approximately at £81 billion, says the report (my emphasis).


A total of 26 companies have disclosed pension liabilities of more than £1 billion, the largest of which is FirstGroup with disclosed pension liabilities of £4.05 billion. (my emphasis)


A total of 156 companies have disclosed pension liabilities of less than £100 million, of which 118 companies have no defined benefit pension liabilities.


Pensions are a ticking corporate governance time bomb, helpfully in the spotlight now thanks to Sir Philip Green. For the latest on that, see this story by The Guardian.

 

The Irony In The UK Govt's Call For Inclusion By UK plc

Posted on March 29, 2017 at 8:20 PM

There are three options, as I see it, regarding a judgement on the timing of the UK government's call on FTSE 350 CEOs to get serious about inclusion - that very politically correct word added on to 'diversity'.'Inclusion' means race, ethnicity, people of colour, actually representing the reality of Britain on the streets in its boardrooms.


(If this blog seems fiesty, let's say it might be re-channeled energy: Article 50 was triggered today, to take Britain out of the EU and no, I am unapologetically not a fan of that. We don't know what the Brexit baby will look like yet - and I wrote about this on Forbes this week.I have also written about Britain, race and boardrooms many times- both here and on Forbes and the search engines work).


Let's start by giving Prime MInister Theresa May's government the benefit of the doubt, on timing. The announcement from the Department for Business, Energy and Industrial Strategy in the link above was made yesterday, presumably to make sure it happened before today, when (obviously) no journalist would be interested.


It could also be that BEIS needs help with its comms team, and timings. But I suspect we are going to see a lot more of this sort of timing, where things that matter - due to bad scheduling and overworked resources - get overlooked, for the most part as it's all hands on deck for Brexit and the de-tanglement from the EU and EU law.


The third interpretation, of course, is 'unconscious bias.' As someone who has followed - and helped publicise - government attempts to increase diversity in UK plc for years, I find they bizarrely often occur at times when they are not likely to get a lot of traction. It does make one question the levels of commitment, just a little.


Some of the media does well in raising such issues. The Guardian had a story on the first female black footballer - a case of mistaken identity. To quote from the Guardian story (emphasis is mine):

"For Sabrina Mahfouz, who co-wrote the production with the poet Hollie McNish, the very fact that such an important pioneer could be forgotten, and mistaken, says everything about the under-representation of women, and in particular women of colour.

“I also think it is really important to constantly remind people that there was immigration to this country from thousands of years ago, and that those people had always been involved in the things that are now known as ‘British’."


I shared it to my Facebook business page @DinaMedlandWordsThatWork - where people are engaged and do get excited....with little traction. I have found the same thing to be true of every single post I have written about racial inclusion.....but write about high heels, and you can suddenly hit the mega number of eyeballs, it seems.


I wonder if people just read the things to which they connect, anyway.


Or...a more sinister prospect ? Is there an algorithm that downplays race ?


Nah. It's just post-Brexit exhaustion, surely, on my part to consider such a thing. But it's one to think about - especially if you care about changing the face of British business.


UK Business Minister Margot James has now written to the chief executives of all FTSE 350 companies urging them to improve diversity and inclusion in the workplace, says the press release.


In her letter, she called on the UK’s largest companies to take up key recommendations from the Baroness Ruby McGregor-Smith Review into black and ethnic minority progression in the workplace, including:


publishing a breakdown of their workforce by race and pay

setting aspirational targets

nominating a board member to deliver on those targets


How high do you think this will be on the agenda of any FTSE 350 plc boardroom  today?


Having watched my evening news like many of you, I am well aware of the immigration concerns of many who are delighted that today the 'Leave' vote in the referendum was respected. But if this government now focuses on the white working class voters who were largely behind that vote - and somehow this inclusion strategy gets derailed, it is a recipe for disaster - and not an issue on which to play politics.


Thoughts on a postcard, please or tweet at me @dinamedland.


PS This blog is in talks about sponsorship with a number of firms, and while I thank them for being interested, it may be more than they bargained for. It does not happen often. But you have to believe in my right to independent editorial comment, always with the best of intentions on governance and ethics. Thank you for reading.






Paying The Price On Reputation - More On #PwC

Posted on March 10, 2017 at 11:30 AM

When something goes wrong for a business - particularly a large one - it's often very easy to blame one or two individuals. Even that doesn't happen often, for those at the very top.


We still struggle with true accountability, and there are multiple places to hide. But all the talk about 'trust' and corporate governance since the financial crisis should continue to make businesses focus harder on public opinion - and reputation. It might also make them reconsider how they choose to promote themselves.


Too much glitzy self-promotion for an auditing business was probably never a great idea - although it did provide lucrative work for over 80 years in the case of PwC and The Oscars. See my post on Forbes: 'At Last, Corporate Governance On The Red Carpet At The Oscars.'


PwC is not having a good year so far on many levels.


Childish, perhaps - but I am hoping those formidably funny women Jennifer Saunders and Joanna Lumley will do a comedy skit around high heels soon to keep this story on Forbes going - because it's more important than it might seem, to connect 'real people' with the workplace.


Now a survey by Morning Consult,  a research and brand monitoring platform that tracks over 500 of the largest public-facing brands in the country on a daily basis, finds that PwC's  ill-fated involvement with the Oscars has hit its brand.


According to the survey, the day before the Oscars, 11% of people said they had an unfavorable view of PwC. By March 7, that number jumped 6 percentage points, to 17%.


And for many, it says, the Oscars were an introduction to PwC: During that same time period, the number of Americans who said they never heard of PwC decreased 4 percentage points, from 39% to 35 %.


So much for glitzy affiliaton.


And as this site powered by WEBS is being completely useless (again) with uploading images - for now you will have to go here for the graph, which is worth noting.


Note: re blog sponsorship, I am open to posting this blog on a sponsor's site, given the right sponsor. #ITfatigue





Oscars, Audit Firms, Accuracy And Inclusion

Posted on February 27, 2017 at 11:00 AM

Oscars, audit firms, accuracy AND inclusion: all in one place? Really. You might well wonder.


Perhaps it's just me - I tend not to think of issues in boxes -but in an inter-connected way - because that is how the world actually works. So when it rapidly emerged on Twitter that the accountancy firm PwC was responsible for the error at #Oscars2017, the first thing I thought was: "but it's an AUDIT firm - it's meant to be accurate."



Silly me. On the other hand, while I watched the BBC Breakfast News in disbelief, the dismissals were already starting.


In case you were wondering, I have no vendetta against PwC.They do some excellent work in corporate governance, for example. But I did write something on Forbes on January 25 which unfortunately involved their London offices - and has I see now had 227,130 hits.....it went up very very fast and is still rising.( No, I don't get paid any more now for more hits.)


At the time PwC was keen to stress it wasn't them, it was their recruitment firm that had the dress code policy. To which I responded here, on Board Talk.


Do big accountancy firms - like large banks - hide behind their very size? Do they know what is going on in every bit of the organisation ? Surely they should.


If I was Warren Beatty - who read out the incorrect reward - I would be very angry. Because millions of people who never bother to read the detail will walk away thinking 'poor guy, he had a 'senior moment.' No, he did not. Speaking for myself, I felt for him deeply as I watched him try to make sense of what had happened - while the world went viral with information and mis-information.


PwC made an appalling error. Will the accounting regulator the Financial Reporting Council (FRC) say anything ? PwC is already being investigated for its audit of Redcentric.


Let's see. You could argue that this is not an accounting matter. But it is a matter of reputation. And the general public is pretty cynical, when it comes to the power of the big accountancy firms. It's all about trust - right ?


Note: ain't social media grand ? Here's some input from a follower...    meet the PwC partners involved in the #Oscars2017 'winnning envelope fiasco'

It's All About You: #ESG Risks In #Pension Schemes

Posted on February 21, 2017 at 8:05 AM

It was only a matter of time before Environmental, Social and Governance (ESG) risks were recognised as being personal. Volkswagen opened that door in a different way, for consumers. Now the focus is on pensions.

 

The Pensions and Lifetime Savings Association (PLSA) has today released its newly commissioned study into the environmental, social and governance (ESG) risks facing members of default funds offered by defined contribution (DC) pension schemes in the UK.

 

The number of savers enrolled in DC workplace schemes in the UK is expected to rise to 17 million (up from 11 m today) with an expected aggregate pension pot of £554bn (potentially as high as £914bn) by 2030; and currently 90% cent of DC savers are in their scheme’s default fund, it says.


At the same time, ESG investing has gained significant momentum in the UK, with £1.4tn in assets under management in the wider investment community in 2015 versus £500bn in 2013. "The combination of these two factors underscores the importance of managing ESG risk in default fund arrangements" says the PLSA.

 

The research has been done by Sustainalytics, a global provider of ESG and corporate governance research and ratings. It assessed the equities allocation for a typical DC default fund, and mapped this against the most prominent ESG risks. Key findings include:

 

First, and importantly - ‘human capital’ is the single biggest source of ESG risk at the companies in which DC default funds invest, accounting for 11% of the ESG risk to which default funds are exposed. (my emphasis)


Climate change risks from energy use and greenhouse gas emissions are also substantial, affecting 22 industries found in a typical DC default fund’s portfolio, more than any other ESG issue.

 

“Pension funds are moving beyond the debate about whether or not the environmental and social impact of their investments matters to long-term returns and on to what they should do to manage it" said Luke Hildyard, Policy Lead: Stewardship and Corporate Governance at the PLSA.


What can one say ? Thank goodness for that.


Or as the author of the report  Doug Morrow at Sustainalytics said:

 

“Given the convergence of UK market trends, understanding and managing ESG risks in DC default funds is becoming increasingly important. Our research findings reveal pension schemes can potentially mitigate these risks by embedding ESG investment products in default fund allocations and engaging on ESG issues with external managers and investee companies. We applaud the PLSA for raising awareness of this critical topic and believe these findings will help to advance the dialogue around ESG issues and default funds.” (my emphasis).

Is Integrated Reporting Becoming Mainstream ?

Posted on February 15, 2017 at 3:05 PM

The short answer to the question is - not yet - but it is certainly catching on around the world as a business choice for better demonstration of value creation. Regulation is being seen as a key driver of progress, and South Africa, the UK and Europe are leading the way in adopting the concept.


In the last few years, following increasing coverage of integrated reporting (IR) - including by me here on Forbes in late 2013: 'If I Had More Time I Would Have Written A Shorter Letter: Integrated Reporting'   (19,100 views as of now) - there has been much more discussion, both in public forums and in private meetings about its worth. Today a snapshot taken of 50 organisations from around the world who have embraced IR finds that 88% of them explain their commitment as being in terms of value creation.


There are big names on this list, including Aegon, AstraZeneca, Eni, Fujitsu, Takeda, CLP, National Australia Bank and Marks & Spencer. The stakeholder communications company Black Sun, which compiled the research, finds that while there is no uniform approach in the way in which businesses are adopting IR, "there is no doubt that integrated reporting is having an impact and becoming the iinternational best practice approach."


It is gathering pace rapidly in Asia/Oceania and Japan, says its report just out. It finds that organisations are using the IR framework to provide their stakeholders "with a more complete and longer-term perspective on strategy, performance and value creation."


A clearer purpose, moving beyond just financial value, recognition of the importance of stakeholder relationships, an increased focus on materiality and connectivity of information were just some of the reccurring themes, says the research. Its key findings include:

– 90% of organisations clearly identify stakeholders

– 76% of organisations clearly identify material issues

– 94% of organisations link resources and relationships with either the business model or strategy

 

Last month The International Federation of Accountants (IFAC) released a paper stating that "Integrated Reporting is the way to achieve a more coherent corporate reporting system, fulfilling the need for a single report that provides a fuller picture of organisation’s ability to create value over time." (my emphasis)


At the end of last year, the joint International Integrated Reporting Council (IIRC)  and International Corporate Governance Network (ICGN) conference in London encouraged the adoption of integrated reporting as information architecture that helps to underpin investor stewardship and good corporate governance.


Black Sun's own recent survey, conducted alongside AICPA, CIMA and the IIRC found "widespread desire among C-suite executives to deliver purpose beyond profit (89%), as well as acknowledging of the benefits of integrated reporting and integrated thinking."


Changes in corporate reporting should be seen as part of business innovation. At a time when climate risk is high on the agenda for businesses and investors, integrated reporting becomes an even more compelling proposition.


And 'purpose beyond profit' may well be a budding theme of 2017. Certainly, if the younger generation is to be considered for its views, it wil be. Later this month I am delighted to attend again the Doing Good, Doing Well conference organised by the MBA students at IESE Business School, in Barcelona.


It dates back to 2001 when a group of students in the Responsible Business Club at IESE wanted to go beyond the classroom and beyond the case studies by inviting leading professionals and thought leaders to campus to engage with students. Now it has become an annual tradition and they say it is the largest student-run conference in Europe.


Purpose beyond profit' is its mantra - and among other things, we will be talking about 'Shared Value.' Stay tuned.


To request a copy of the Black Sun research please contact Sarah Myles at smyles@blacksunplc.com.

 


 



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