Creating shareholder value has traditionally been the primary focus of corporations. However, since the 2008 global financial crisis, the concept of value has changed. There is growing acceptance that the goal of a corporation should be to create long-term, sustainable value for all its stakeholders, while contributing to society and the environment in a positive way.
This is particularly important, as long-term business success is increasingly dependent on a well-functioning society. There has also been increasing demand for companies to improve their corporate reporting, and articulate whether their business model is sustainable. But how can C-suite executives demonstrate corporate societal stewardship to create sustainable value?
The emergence of integrated reporting (IR) and “integrated thinking” are shifting the focus of organisational performance to a more comprehensive view of value that is forward-looking. The IR framework, as promulgated by the International Integrated Reporting Council (IIRC), is helping organisations to encourage and embed integrated thinking.
The IIRC defines integrated thinking as “the active consideration by an organisation of the relationships between its various operating and functional units and the capitals that the organisation uses or affects”. Though not a new concept, it is gaining wide acceptance as a best practice approach to management, and is helping companies to adopt a more holistic approach to decision-making, which entails consideration of the impact of their decisions on a wider array of stakeholders, including investors, employees, suppliers, and customers.
A broader view
Through integrated thinking, managers have a broader view of the business and a better understanding of the connectivity between key value drivers of financial and non-financial performance, and their impact on the value-creation process.
The integration of non-financial with financial factors is leading to a better understanding of how resources are affected, and to more effective resource allocation. Integrated thinking is increasingly being used to break down internal silos and bring together a myriad of skills and knowledge.
Progressive C-suite executives who are embracing integrated thinking are using it strategically to have a broader view of stakeholder value, and integrate corporate communication. Furthermore, integrated thinking is helping to inform strategy, and evaluate risks and opportunities more effectively.
By working in a more integrated manner, boards have a better understanding of the business and are better positioned to identify the initiatives that create the most value. Greater collaboration and flow of information is helping to formulate more robust strategies, and the focus on environmental, social and governance (ESG) factors is pushing the most visionary companies to incorporate these factors into their strategies. Some CEOs are already demonstrating leadership by linking social purpose to profits, while identifying opportunities to unlock hidden value.
Integrated thinking, however, does not happen overnight. Being responsive to a wider group of stakeholders requires a balancing act and a more integrated approach to leadership. Management must cultivate a culture of integrated thinking and create more transparency in the decision-making process. CEOs must set the tone at the top and foster an environment that is built on collaboration, openness, and trust.
Everyone in the organisation should have a common understanding of the implementation of the strategy. The better the quality of information, the more aligned employees will be in achieving the same goals. By having a clear line of sight, employees will feel more empowered and motivated, creating the right environment for strong organisational health.
Corporate communications resulting from an integrated management approach are showing significant improvement, and are becoming more effective in articulating more holistically how value is created.
Companies that practice integrated thinking are already seeing positive results, not only from the integration of financial and non-financial performance, but also from having a strong focus on creating sustainable long-term value.
Consumer empowerment and other megatrends are changing the relationship and dialogue between companies, investors and society in general. CEOs, meanwhile, are being challenged to think beyond profits and justify their licence to operate in society.
Giorgio Saavedra is senior financial officer and integrated reporting lead at The World Bank.