governance is king - universitas indonesia
Post on 08-Feb-2022
1 Views
Preview:
TRANSCRIPT
GOVERNANCE IS KING:INTEGRATED REPORTING
AND BETTER GOVERNANCE
Jakarta19 November 2014
Presented by Mervyn E King SC
Corporate Legal Advisers
THE COMPANY YESTERDAY
The primacy of the shareholders
Wealthy families
Single focus and bottom line
Financial reporting – rear view mirror
Prepare as if only user the investment analyst
100 years but IASB and FASB
Corporate Legal Advisers
“OWNERS”
Person cannot be owned
Shareholders have important incorporeal rights
Secondary markets
Company sovereign
Milton Friedman
Part of society
Corporate Legal Advisers
YESTERDAY’S ECONOMIC MODEL
Yesterday’s economic model was based on two false assumptions that :
there were limitless resources in nature and
that planet earth had an infinite capacity to absorb waste
Take – make – waste
Industrial revolution
Until middle of 20th century
Corporate Legal Advisers
THE COMPANY TODAY
New capitalists
Stakeholders – inclusive
Legitimate NIE’s
Moat of stakeholders
Not in a vacuum – a triple context
What are the megatrends of the 21st
century?
Corporate Legal Advisers
21st CENTURY MEGATRENDS -DRIVERS
Global financial crises
Climate change crisis - anthropocene
Ecological overshoot
Radical transparency
Digital manufacturing
Greater expectations from stakeholders
Population growth and urbanization
Cannot carry on business as usual
Have to learn to make more with less
Corporate Legal Advisers
COMPONENTS OF MARKET VALUE
(SAICA)
8368
3220 19
1732
6880 81
1975 1985 1995 2005 2009
S&P 500
Physical and financial assets Other assets
Corporate Legal Advisers
ICGN
Traditional accounting and reporting emphasise discrete assets, presenting them as additive rather than interdependent. In the modern economy, it is increasingly the interaction among assets, e.g. people, technology, capital, networks, that drives value creation.
Corporate Legal Advisers
THE WORLD
Norway and Sweden
The Stiglitz Report, France
Danish Financial Statements Act
UK Companies Act
German Commercial Code
Indonesia
IFAC and UNCTAD
Harvard
SEC
A4S
GRI
G3 Guidelines on sustainability reporting
IIRC and IRCSA
JSE listing requirement and World Stock Exchanges in Xiamen
Corporate Legal Advisers
INTEGRATED THINKING
Integrated as opposed to “silo thinking”
Every company dependent on relationships and resources
Mindset change at board level
Agenda item inputs
Knowledge of stakeholders’ legitimate NIE’s
Greater stakeholder expectations
Corporate Legal Advisers
WHO ARE STAKEHOLDERS?
Parties who contract with the entity e.g. customers, employees , suppliers etc
Parties who have a non-contractual nexus with the entity e.g. civil society, local communities, NGOs, the environment
The State as legislator or regulator
Corporate Legal Advisers
WHAT IS SOCIETY?
Banks and their depositors
Shareholders – ultimate beneficiary?
Customers
Labour
Suppliers
Directors and managers
NGO’s and civil society – e.g. Greenpeace
Society the licensor
Corporate Legal Advisers
REPUTATION
Managing relationships
In a mutually beneficial way
Cannot buy reputation – a reputation is a consequence of those relationships
What stakeholders perceive about a company
Part of 80% of market value
Trust – a deposit earning interest
Corporate Legal Advisers
INFORMED MANAGEMENT
Knowing the NIEs
Manage on a more informed basis
Develop strategy on a more informed basis
Better business judgment calls
Because meeting stakeholder expectations
Corporate Legal Advisers
CSRO (1)
A corporate stakeholder relationship officer
Ongoing relationship with stakeholders
Ongoing in informing management
Ongoing evaluation of the company’s business model
Ongoing evaluation of the company’s risks and opportunities
Assess the efficacy of all the line functions
Corporate Legal Advisers
CSRO (2)
Capable of integrated thinking
An experienced executive
Who understands business value propositionsand the interdependence between resources used, the business model, the product and stakeholder relationships
Understands the triple context
Good communicator and networker
Report to CEO at each board meeting
Corporate Legal Advisers
BEYOND FINANCIAL REPORTING
Triple context
Report in monetary terms
FR critical but not sufficient
SR critical but not sufficient
F impacts on the NF & vice versa
Corporate Legal Advisers
VALUE
Present value of expected future cash flows
The positive and negative impacts on the triple aspects by business model & product
Enhancing the positives, eradicating or ameliorating the negatives
Embedding sustainability issues into strategy
Reader able to make an informed assessment
Corporate Legal Advisers
EMBED SUSTAINABILITY
Identify sustainability issues material to business
As water is to beverage manufacturer
Embed sustainability into long term strategy
In context of resources, relationships, risks, opportunities and global turbulence
Corporate Legal Advisers
All organizations depend on a variety of resources and relationships for their
success. These resources and relationships can be conceived as different
forms of “capital”. Source: Incite Sustainability 2.0: A Guide to Competing in a Changing World
Corporate Legal Advisers
Financial Manufactured Human Intellectual SocialNatural
INTEGRATED THINKING
(Relationships)
Corporate Legal Advisers
UNILEVER
Anthroprogenic age
Long term plan – re-engineer
Productions and products
Renewable power, recyclable materials, zero waste to landfill, consumer and supplier
InputsCapitals, which may take the form of.
• Funding model
• Infrastructure
• People
• Intellectual property
• Raw materials
• Ecosystems services
• Relationships
Business Activities.
• Research and development
• Planning
• Design
• Production/ conversion
• Product differentiation
• Market segmentation
• Distribution
• Service provision
• Quality control
• Operational improvement
• Relationship management
• After-sales service
Outputs• Products
• Services
• Waste
• Other by-products
Outcomes
• Customer satisfaction.
• Profit/loss
• Shareholder return.
• Asset consumption.
• Contribution to local economy through taxes.
• Job creation
• Employee development and engagement
• Improved standard of living
• Environment impact
• License to operate
Impact on long term value creation (internal &external)
Source-IFAC, CIMA, PwC
Corporate Legal Advisers
INTEGRATED THINKING
Impacts
Leverage
Of company’s business model
KPI’s and KRI’s fall under financial or non-financial?
Corporate Legal Advisers
INTEGRATED THINKING
Understanding, knowing and then planning:
The impacts of how the company makes it money
The impacts of the company’s product
How the company will sustain value creation in the long term
Corporate Legal Advisers
THE OPEN KIMONO
Reporting influences behaviour
Integrated reporting – King III
IIRC – formation 2010
Informed assessment
Discharge of fiduciary duty by trustee
Corporate Legal Advisers
SYSTEM OF REPORTING
Is there one?
Bolt on a division’s report to another
Chairman’s statement
Integrated report has a system
The collective mind of the board
FR impact on NF and how material sustainability embedded into strategy to sustain value creation
Corporate Legal Advisers
DRIVERS FOR INTEGRATED THINKING
Megatrends
The customer of today
The new capitalist
The identity & reputation of companies
Market forces – external – e.g. natural assets
Responsible investment
Corporate Legal Advisers
EVOLUTION AND REVOLUTION
The integrated report is evolving
It is an evolution in corporate reporting
Integrated thinking is a revolution
A revolution in the approach to managing environmental and societal issues
Overwhelming support for integrated thinking
Corporate Legal Advisers
THE INTEGRATED REPORT
To be accountable you have to be understandable
“If I had more time …..”
Corporate Legal Advisers
BUSINESS NETWORK
Pioneer - framework
Champions
Street of last opportunity
Avenue of sustainable capitalism
Corporate Legal Advisers
SOME CONCLUSIONS
Tell your stakeholders what you do, do what you tell them, and write it down in your Integrated Report
Companies cannot solve 21st century problems with the same mindset their boards used when they created them
We cannot solve 21st century corporate challenges with 20th century decision making or reporting
Corporate Legal Advisers
INTEGRATED REPORT
Reporting influences decision making
A concept, fit for purpose
Whose time has come
Because of the changed world
Financial, natural, human, society, manufacturing, intellectual capital
Critically interdependent and interconnected
theiirc.org
Corporate Legal Advisers
THE FUTURE
Mindset change
Capitals and stakeholder relationships
Population and diminishing natural assets
Sustainable capitalism
Greater stakeholder expectations
Responsible investment
Corporate Legal Advisers
THE WBG AND THE IMF (1)
Meeting 10 October 2014 in Washington
Mark Carney, Governor of the Bank of England & Chairman of the FSB
Betrand Badre managing director of the WBG
Discussed how IR facilitates transparency and financial stability
Improves the quality of information available to providers of financial capital
FSB: Stability and sustainability – 21st century challenges
Corporate Legal Advisers
THE WBG AND THE IMF (2)
Mark Carney: “By improving reporting requirements for organisations, Integrated Reporting can bring additional information, in particular about the longer-term costs of climate change, to feed into markets and inform decision-making and policy-formulation by institutions. If achieved, it will lead to better informed and more sustainable long-term investment, for the benefit of society”
Corporate Legal Advisers
THE WBG AND THE IMF (3)
Bertrand Badre: “Public sector entities are one of the largest, if not the largest, reporting entities in the world, so the transparency of their financial information is of importance to us all. Integrated Reporting would enable governments and their stakeholders to gain a better understanding of resources available and help them to manage these more effectively
Corporate Legal Advisers
THE B20 (4)
The B20 recommends that a review be conducted by the IIRC and the IASB in relation to making corporate reporting more conducive to infrastructure and other long term investment and eliminating or addressing current barriers
Corporate Legal Advisers
THE GLOBAL COMMISSION (5)
On the economy and climate
Has recommended that businesses should adopt and implement the IR framework
Corporate Legal Advisers
THE JAPANESE GOVERNMENT (6)
Japan’s Ministry of Economy, Trade and Industry (METI) has endorsed IR as a means of communicating the long-term value creation proposition of companies, and is encouraging Japanese companies to become best practice leaders in IR
Corporate Legal Advisers
ICGN (7)
7.5 of their governance principles: “the board should provide an integrated report”
That fits with CRISA’s principle one
Corporate Legal Advisers
EU DIRECTIVE AND UK FRC (8)
ESG reporting in EU for large companies and Strategy Reports in UK
Both one step to IR
Corporate Legal Advisers
SINGAPORE, MALAYSIA, INDIA AND PHILIPPINES (9)
National strategy in Singapore
SCM strong support for IR
SEBI called on the CII to build a roadmap to produce IRs
IIRC framework being introduced to the Philippine Stock Exchange
ADB invites MEK in Q.1 of 2015 to address IR with major Asian corporations
Corporate Legal Advisers
IDEAS
Man and nations
Helen Keller: “The only thing worse than being blind is having sight and no vision”
We have the light
Why grope in the dark?
top related