Chaired the IIRC Working Group that developed the International <IR> Framework
A decade ago, in late 2010, I was living in New York and was CEO of the International Federation of Accountants. In that role, I participated in a meeting called by HRH The Prince of Wales to consider a way forward for corporate reporting. This meeting led to the establishment of the International Integrated Reporting Council. In the immediate aftermath of the global financial crisis, the very diverse group of organizations who participated in that initial meeting were agreed: corporate reporting needed a radical overhaul, and that this was a matter of urgency. Unlike the reaction to the financial reporting failures of the turn of the century, the response was not to narrow the focus of corporate reporting to the audited financial statements, but to recognize that it needed to be broadened.
While there was a wide variety of views as to exactly what form this new concept of corporate reporting should take, underpinning them all was the view that the performance of companies was not reflected solely, or sufficiently, in their financial statements, important though those were.
Reflecting ten years later on the achievements and future of this initiative, one can conclude that the International <IR> Framework, published in December 2013, has proved to be very robust and a great deal has been achieved in re-orienting corporate reporting. The challenge for the future, which has been recognized and is being addressed, is to bring greater standardization in this extended reporting.
There is one aspect of the <IR> Framework - the way the business model is depicted - that warrants more attention than it has received, at least until the recent review of the Framework. This is the distinction between outputs – the products or services that a company produces – and outcomes – the impact of those outputs on the society and economy. This distinction is critical to understanding how companies create value, as the real value is in the outcomes. But equally, it is only through the production of outputs that the value is created.
In other words, reporting on both outputs and outcomes is essential to understanding corporate performance. Understanding these terms is directly analogous to understanding terms such as revenue, expenses, assets and liabilities. These are all technical terms, and one of the challenges for the future is to achieve greater clarity and consistency in their usage.
These terms are also fundamental to reporting performance in the public sector and their incorporation into the <IR> Framework means integrated reporting is as relevant to performance management and reporting by governments as it is to companies, with potentially similar benefits – encouraging a long-term perspective, focusing on how value is created, and the importance of strategy.
In recent years there has been an increasing interest in the reporting of ‘well-being’ by governments and incorporating these considerations into government budget processes. The term ‘well-being’ is synonymous with outcomes, so the business model in the <IR> Framework fully accommodates the desire to report on and think about ‘well-being’.
This parallel between corporate and government reporting, and the way integrated reporting can serve both is one of its great strengths. Integrated reporting can act as a common framework within which we can, as citizens, as investors, as consumers, measure and assess the performance of organizations, whether in the public or private sectors, for-profit or non-profit, and will do much to enable all organizations to be judged on the contribution they make to the society of which they are part.