A reporting strategy needs to be implemented by a sound reporting process that delivers integrity of information, is backed by the right people, and right technology – all contributing to the building of trust.
To build deeper trust in the market, organisations need an effective reporting strategy that drives the corporate reports portfolio, with an integrated report as the flagship report. For the best results, this reporting strategy should be upheld by an efficient integrated reporting management system.
An integrated reporting management system should underpin the credibility of the corporate reporting portfolio. It ensures the business has the right processes to feed robust information for management decision making, as well as for its integrated reports, across a broader spectrum than financials. Quality information will also lead to stronger board confidence in the accuracy of the reports, and a greater willingness to sign accountability statements for integrated reports.
These factors will assist the business to build trust, and investors and other key stakeholders to make informed decisions with confidence.
Based on the reporting strategy, the management system should comprise a reporting process, a reporting team, and appropriate reporting technology, which all work together to channel information into the corporate reports portfolio – and ultimately to the market.
This approach helps boards to meet their obligations under ASX Corporate Governance Principle 4, which says they are responsible for the integrity of processes over all corporate reporting.
The management system also provides a clear framework (processes, systems and controls) for auditors to test and opine on, thereby adding further credibility to the information.
The reporting strategy forces a consideration of the ‘reportability’ of the company’s strategy and business model, which is central to explaining how it will create longer-term value. As organisations work to establish an integrated reporting management system, they may find the need to clarify and streamline aspects of the business model and strategy (e.g. how they are documented and understood internally) as they may not be clear or fully aligned. This is an example of integrated thinking – a benefit of moving towards integrated reporting.
The next step is to solidify the information gathering process for the delivery of each report component. This can prove challenging, as the reporting process for integrated reporting will be quite different to traditional financial, sustainability and other regulatory or voluntary reporting processes, which are likely to be well established. This is because integrated reporting often requires narrative context around things such as non-financial KPIs, diagrams, pictures and hyperlinks. Therefore, clear definitions of metrics, as well as more broadly based internal control systems that control the quality of narrative, non-financial KPIs, diagrams, pictures and hyperlinks, are needed.
For example, a diagrammatic representation of a business model may be used. It may also include links to KPIs measuring the performance of the business model, or to reporting on risks to implementing the business model and their mitigation. In this scenario, controls are needed to ensure that the business model, KPIs and risk mitigants are the ‘real’ ones – those set by management, overseen by the board, and used in internal performance measurement and reporting.
As another example, the terms ‘employee engagement’ and ‘customer satisfaction’ can have generally agreed definitions at a high level – but a deeper set of definitions is needed to define how they are being calculated, how to determine the data source, and a process to feed them into reporting.
Process change may be required to achieve this quality of information. However, it may prove an opportunity to refresh processes and controls more broadly in relation to the strategy, business model, key value drivers and risks. The effort will also help from an accountability, governance and assurance perspective, as it will underpin tight management over reporting on key value drivers and risks – with the ability to push and pull levers to effect change, without loss of control over data integrity.
The point is to ensure data is robust, duplication is removed, and that there are clear KPIs that can be measured with integrity year-on-year, and across departments. Importantly, it helps to build ‘investment-grade’ integrated reports that can be trusted.
To bring new processes to life, people need to drive and support the change. The reporting team must be equipped with the knowledge, skills and experience to implement the reporting process, and ensure integrity and reliability of information.
Integrated reporting requires a much greater emphasis on business knowledge, skills and experience within reporting teams, given that the business strategy and business model underpin what is captured, analysed and reported. This may require change within, or additional education of, reporting teams.
Engaging people to define the integrated reporting management system in the context of the reporting strategy, so they feel ownership of it, is a good place to start. It is important they are involved in determining the relevant information that needs to be captured and reported. With this agreement, it is easier to implement the right program of change with appropriate training and incentives to assist in its success.
Key to the integrated reporting management strategy is implementing the right technology to support the development of accurate internal and external information on the defined business areas. In other words, capturing and measuring the agreed KPIs.
There are two key aspects of technology in the context of an integrated reporting management strategy.
The role of technology is explored in more detail in Technology and audit – a powerful future.
In an environment where building trust is paramount – a robust integrated reporting management system underpins strategic management and board oversight.
With active governance from the board and robust assurance from independent auditors over the integrated reporting management system, and the integrated report itself, organisations could achieve better capital allocation, better business performance and most importantly – improved stakeholder trust.
Boards must play a central role in defining what to report to markets and focusing on long-term sustainability to build trust with stakeholders. Find out more in Active governance – Boards, trust and transparency.
We explore how corporates can maintain and rebuild trust – the strategies for designing and aligning organisational infrastructure to engender trust.
Key insights from a AFR-hosted roundtable event on rebuilding corporate trust in Australia.
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