Committing South Africa to Integrated Reporting (2014-10-17)

February 20, 2015  3812  3812   

Kwazulu Natal: Public talk by TM Booysen

In 1844 the first British Companies Act was passed, requiring auditors to examine the accounts of all public companies.

By 1862, an updated British Companies Act was passed which required banks to be audited.

By 1925, the American company and accounting laws and regulations had also increased, but it was not until after the Stock Market Crash in 1929 -- which led to the Great Depression and affected economies worldwide -- that financial reporting became mandatory for listed companies in America.  As a result of the Stock Market Crash in 1929, the US Congress enacted the Securities Act of 1933 which required listed companies to file financial reports.  Following the Stock Market crash, financial accounting and reporting gained momentum as various countries imposed stricter regulations on organisations.

By the 1970’s, the term Corporate Social Responsibility (CSR) began appearing in reports -- often in the form of advertisements and small sections in annual reports – and in many cases this was done in an attempt for organisations to regain popularity after they had suffered some form of reputational damage. Expectedly, these reports were largely unverified and disconnected from the organisations’ corporate performance.

During the 1980s, CSR lost momentum until 1989 when an American company hired a ‘social auditor’ as part of their yearly audit.  Since then, social accounting gained momentum worldwide as environmental and social issues gained public interest.  As CSR grew in importance, the need for organisations to demonstrate a correlation between their Annual Financial & their CSR reports increased.

So ladies and gentlemen, after some pretty disastrous events circa 150 years ago, there have been significant developments and expectations in company reporting.  In the greater scheme of things; these events were most likely the main catalyst for company reporting, and what we now call Integrated Reporting.

So what exactly is an Integrated Report?

Integrated Reporting is a relatively new phenomenon in the world of corporate reporting and it has gained traction across both the corporate and investor community in the last ten years.  For all intent and purpose, an Integrated Report should be a single report which is the organisation’s primary report for reporting to the organisation’s stakeholders matters which pertain the organisation’s strategy, governance and financial performance, including the social, environmental and economic context within which it operates.  Interestingly, in some jurisdictions there is a distinction regarding who the readers of the Integrated Report should be?

In respect of those countries who follow the principles of King III strictly, the Integrated Report would be prepared for the organisation’s stakeholders (this means shareholders and other stakeholders).  But in other jurisdictions, the target audience is only the shareholder and this is to the exclusion of the organisation’s extended stakeholders and supply chain.  Indeed, in South Africa there is no hard and fast rule that the Integrated Report should be a single report; in most cases the Integrated Report is in fact a separate report which is complimented by the organisation’s set of annual reports.

In the PwC’s latest survey of JSE Top 40 Companies’ Integrated Reports 2014; only 15% of South African companies have a single Integrated Report.  The remaining companies all offer a ‘suite’ of multiple reports.  Of course it may be argued that singular reports -- assuming they provide the necessary and sufficient information -- make it far easier for any stakeholder to get easier, more rapid access to an organisation’s IR information as compared to those who don’t offer a single report.

To this point, making this information available via the organisation’s website, makes potential investor’s investment decisions much easier and hopefully faster too.  In most cases, the Integrated Report is produced once a year.  Whilst this report is generally compiled by the company secretariat -- and even sometimes outsourced to a PR agency -- it is strongly advised that in producing this report, all key players of the organisation should be involved in its compilation.

So often this report is simply seen as an irritation and it is passed off to a junior person in the organisation who simply does not understand the critical role this report can play in the promotion of the organisation’s activities.  Used correctly, this report has as much meaning to a potential investor, as what it does for any other stakeholder such as an employee or supplier.

Get the contents wrong, and the organisation can get into deep trouble with shareholders, the media, activists and even the various regulatory bodies who use the information, or lack of information, as a tool for further interrogation.

Each element of an Integrated Report should provide insights into an organisation’s current and future performance.  Indeed, the report must show proper and applied integrated thinking; rather than some slap-dash approach of useless, or even worse, false information.

How does the Integrated Report fit into Integrated Reporting?

By addressing the material issues for an organisation, an Integrated Report should demonstrate in a clear and concise manner an organisation’s ability to create and sustain value in the short, medium and longer term.

Integrated Reporting demonstrates the linkages between an organisation’s strategy, governance and financial performance and the social, environmental and economic context within which it operates.  Used correctly, the report is not seen as a ‘static’ document which is parked on a coffee table or posted annually on the website to comply with a ‘tick-box’.

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