It’s an interesting question, and one that cropped up at the ICGN/IIRC joint conference this week in London.
It’s not a frivolous question; after all, if integrated reporting (IR) is good at persuading boards to develop strategy for long-term value creation, and if investors and economic reformers like long-term value, then why not make integrated reporting compulsory?
It stands to reason doesn’t it?
Except, that wasn’t how people saw things. Tim Haywood, group FD and head of sustainability at Interserve, warned that IR’s prospects for widespread adoption might be damaged if regulators “hijacked” it.
Then Tata Steel’s company secretary, Parvatheesam Kanchinadham, said his company was opposed to mandatory IR in India for fear it could become a “tick-box” exercise.
In an interview for Board Agenda magazine, Michelle Edkins—BlackRock’s global head of investment stewardship—observed that governance reform was often much more effective if it came from within the “practitioner” community, rather than being imposed from the outside by politicians. She made the point that people commit themselves and “buy in” much more if they have been part of deriving the change.
So, does the same principle hold for IR?
The truth is that the key aspect of IR is “integrated thinking”, as Richard Howitt, new chief executive of the IIRC, told me in a recent interview for Board Agenda. It’s about boards using IR’s six capitals as a framework for thinking about strategy. And the awful truth about that is that you can practice IR as a superficial compliance exercise without really doing the “thinking”, if you’re really so inclined.
And if regulators were to get their hands on IR, what would they do with it? It has to be assumed they would start by trying to flesh it out, add detail, establish guidelines, ask for strict comparable metrics; mostly they might try to add precision. And the reason would be simply to make IR’s application uniform across all companies; otherwise how could a regulator make a judgement about whether it had been correctly applied in one corporate and not in another?
IR is not really about that. It’s a broad scheme of thinking that challenges companies to carefully work through how they relate to key capitals: financial, manufactured, intellectual, human, social and natural. When they do that, they start to think differently about strategy and how they report it.
Layering in detail could well leave it in the same position as accountancy rules: rigid and eminently subject to a tick-box mentality. And of course, rule-dodging.
So, let regulators endorse IR. Let them say publicly that it is a useful framework for thought. Let the G20 say it is a preferred way of reporting. Let politicians, think-tanks and investors rave about it. But for now, let’s keep it voluntary.
This way when companies do choose it, they’ll do so with real commitment.