Recent comments released from IIRC in their February 2014 Newsletter
Managing Director of the International Monetary Fund, Christine Lagarde, has spoken of, "the breakneck pattern of integration and interconnectedness that defines our time”, bringing with it tensions in economic sustainability and global interconnections. <IR> is an important mechanism for driving the new way of thinking and behaviour needed in the ‘hyper-connected’ world that Lagarde has described. It focuses businesses on communicating the environment they work in, and its strategy for the future.
<IR> is here to stay. As we reported last month, it has already been embedded into the education syllabus of a global accountancy institute, and this month the Chartered Institute of Management Accountants has also announced its decision to ensure students are examined on <IR>.
This move, combined with the evidence and analysis emerging, demonstrates the durability of <IR>’s underlying concepts.
The era of isolated capitals, disconnected from strategic risks, business performance and financial stability, is over. All of the capitals are strategic to the long-term performance of businesses and economies, and it is critical to account for them in a cohesive, interconnected way to better manage risks, and strengthen the prospects of long-term improvements in performance.
As Christine Lagarde has stated, this is an interconnected global economy, and that means new thinking and new mechanisms to address challenges that can no longer be addressed in the isolation of one institution or jurisdiction. The power exercised by coalitions, such as the IIRC, that are embedded in the market is as valid as that of established institutions. Regulation is insufficient in itself to bring about meaningful change to the quality of corporate reporting, but it can encourage innovation in the market and should not be ignored as a catalyst for <IR> over the long-term.
Selected comments taken from the recent release of the IIRC Newsletter for February 2014
Comments
Yes Mary you’re right the harder is to establishing the big picture and one of the ambitions of <IR> is to show how the organization creates value over time by utilizing its unique capitals in its own business model in a big picture.
It is necessary to bridge today’s fragmented disclosures to present a more holistic picture of the organization’s value creation story.
Thanks Andrea and Peter -
Integration is definitely key. Andrea, you might want to check out the conversation we had recently here about the IIRC model. I often call this the Blind Men and the Elephant problem--as long as different people speak so adamantly about just one part of the picture, the harder it is to see the whole. I think the IIRC is doing a good job with helping drive that integrated view. I think that this effort will be focused on what I've started calling inside-out measurement (financial and nonfinancial indicators developed by the organization). I know that you have been very active in the <IR> movement and hope you will continue to share your thoughts here with us!
Peter gets to another key issue with the question of "value." One of the interesting things about the knowledge era is the acceleration of value creation that exists outside our traditional measurement systems. Think how many free apps and how much free data we have access to and how much value these have created in our lives (very little of it captured by financial metrics, unless you count the IPO's of companies like Facebook and Twitter). Sometimes an inside-out metric can capture this (WhatsApp's 450 million users, for example).
But to understand WhatsApp users and a lot of the value created by companies, we need to think from the outside in. This is why our ICounts Graphs are based on stakeholder feedback. I personally plan to continue to spend a lot of time creating strong outside-in capabilities. Mary
Hi Mary, I agree with your view that collaboration and negotiation resides in the value creation box and as part of the strategic capital you describe, particularly drawing upon your comment on another thread on strategic capital 'This is the outgrowth of a concept that Leif Edvinsson used to call Business Recipe. In our schema it includes Business Model, External Factors and Culture. Reasons for seeing it as a separate category'.
It seems that the business recipe, business model or strategic capital that we refer to requires negotiation and collaboration competencies as key ingredients to convert the intangibles into value - the intangibles will have latent, potential value, but of little value on their own without this conversion. And I suspect the value will be fluid, dependent upon the value assigned to it by the 'users' - one person's trash may be another's treasure - and when it comes to intangibles, this may explain why it is difficult to place a standard measure on intangibles and value as an end product - perhaps measures of process may be more accurate.
I would like to bring to your attention an issue considered of extreme importance to financial analysts which is that of the integration of information (Connectivity of Information ) belonging to different components of the Business Model that will turn out to be "material" in relation to the value creation in their interactions with external factors and the relationships that have an impact on the performance of organisations.
The integration of information is, therefore, an extremely important point of focus of the Integrated Report that can support the decision-making process of long-term investors and of financial analysts, believed to be the primary readers of this document and allow an evaluation of information not only through the traditional financial ratios, but also through the "non- financial " KPIs and indicators of socio-environmental sustainability.
It is therefore necessary realize the connection of information that include also the data on the development of global markets that have an impact on the organization, identification and assessment of threats and opportunities and the integration of business strategy through performance / risk indicators, the system of governance and remuneration policies. In summary, the attention to the issue of connectivity of information is crucial to test the ability of an Integrated Report:
Hi Peter - I think that their model puts collaboration and negotiation inside the value creation box (see graphic here) that I call strategic capital (explained in the definition of IC here).
In my experience, most of us are neophytes at true collaboration. Would love to hear more from you on the subject!
Thank you for the reference Paul - I wonder if the IIRC has a particular focus on the valuation of core (organisational) competencies such as collaboration and negotiation that will be essential for 'connectivity - similarly, a focus on the strength, health and development of networks.
Thanks for sharing this Paul - I had signed up for their newsletter but didn't get this. It's an interesting set of snapshots. It's kind of hard to figure out how things work there. It would be nice to see a little more conversation going on there!