- Importance of foresight
- Capital evolution
- SAICA’s new Health and Wellness Advisory group
- Accountants to save the world
- Integrated Reporting Project Awards
Importance of foresight
With a multitude of research available on the importance of long-term business planning, most organisations still focus on short-term targets even during times of zero economic growth, and this leads to poor outcomes
For too long many businesses have been flying by the seat of their pants, ‘shooting from the hip’ as it were when it comes to developing a business strategy – and especially when preparing for the future. When an economy is performing well, it could work, but – in the words of Warren Buffett – ‘you only find out who is swimming naked when the tide goes out’.
It is when economies are struggling that flawed strategies, or those without long-term strategies, are revealed. Many businesses may also realise that their success was simply due to living off the fat of a prosperous economy and not due to clever strategies, if any at all.
In challenging times, we see the impact of the lack of long-term foresight based on an in-depth understanding of trends and macro patterns in change – as well as a healthy respect for the complexity we are doing business in.
Damaging impact of short-termism
The disruption and volatility in the political environments of Europe, the UK and the USA are to some extent still the result of the aftershocks of the Great Recession. People across the world are losing faith in democracy and capitalism, creating political and economic turmoil in many countries. South Africa is not exempt from this and the general feeling among many South Africans – rightly or wrongly – is that a new economic paradigm is required, even though there are many other global and local reasons for the low growth.
From a global and local perspective, we are at the end of the prosperity road of the 1990s and early 2000s. This creates uncertainty, and ambiguity and business are not bedfellows. The current economic climate is therefore generally not perceived as conducive to doing business.
Unfortunately, the narrative among most businesses today is that long term in business is the next quarter. Pressure to achieve short-term targets has become endemic. In fact, business leaders don’t do much better than politicians: like politicians, business leaders are not rewarded for solving tomorrow’s problems.
The most obvious result of this ethos is the environmental damage we experience today – a direct result of our short-sighted view on the systemic consequences of our actions for nature. In fact, many of our actions reinforce Sir Francis Bacon’s rhetoric about the ‘torture of nature’.
Long-term view proves successful
However, recently empirical evidence has been coming to the fore confirming that companies with long-term strategies perform better than those focusing on short-term objectives. McKinsey’s Corporate Horizon Index, published in February 2017, provides evidence that a long-term approach can lead to superior performance for revenue and earnings, investment, market capitalisation, and job creation.
Of interest is that between 2001 and 2014 long-term companies on average spent almost 50% more cumulatively on research and development than short-term-focused companies. Long-term companies, unlike the others, also continued to increase their research and development expenditure, even during the Great Recession.
Is your company ready for the future?
In order to embrace long-term futures, boards and business leaders would need to do a few things.
First, adopt a long-term view on the future, scanning the contextual and competitive environments for new business opportunities and threats disguised as trends, but especially also as emerging issues and weak signals. The results of this intelligence gathering should be considered in the design of new, innovative visions and strategies – that is, normative scenario planning.
Second, the contextual (political, economic, social and technology) and competitive (competitor, buyer, supplier, etc) environments should be monitored continuously for signals of change (that is, explorative scenario planning).
These two types of scenario planning should then be combined. When you create the future, it is important to consider the impact of the explorative scenarios on the normative scenario(s) or the preferred image of the future. Both types of scenario planning should be considered and be combined in one strategy, as far as possible. Of course, a strategy’s systemic consequences for nature should be considered, too.
This implies that some sort of scanning system should be operational in a business. Considering the current economic climate, it is also essential to scan for business opportunities outside South Africa – in Africa, but also beyond Africa.
The long-term view
It is extremely challenging for any business to dedicate time and resources for focusing on new innovative ideas, as well as research and development – especially if the current cash cow is delivering the required income and profits. However, it is crucial that all businesses think about the future all the time, even though there is no immediate incentive to do so. The day will arrive when the cash cow provides its last bucket of milk.
We are living in a complex society in which the system is greater than the sum of its parts, and where cause and effect are not clear at all. The future is not deterministic at all – nothing is guaranteed or can be predicted.
Black Swans, or unexpected events with major consequences, will increasingly be the norm in the future. Business leaders need to learn to manage amidst the systemic chaos, in which solutions will only emerge during a crisis. Currently this skill is in short supply.
Finally, even though Black Swans will occur more often in the future, certain past macro patterns in change have been identified by macro historians and they are applicable to the business world too. They are the result of deep psychological undercurrents in human behaviour.
For example, Arnold Toynbee in his work A Study of History says that any empire or civilisation is eventually destined for decline.
The question is, when will your business’s decline start? And if you have accepted this fact of life, does your strategy reflect this possibility? How can you adjust course to make provision for counteractions and move to a position of innovation and revival – to avoid decline?
It is important to understand macro patterns in change. It is vital to make sure that any grand business vision of the future is not unhinged. In other words, to avoid having far-fetched business strategies (for example being overly influenced by one aspect such as technology trends) a vision and strategy should undergo a reality check. Businesses should ask themselves whether their vision and strategy are realistic based on what they know about macro patterns in change. And if not, what can they do to avoid repeating others’ mistakes?
Business leaders often get far too involved in operational cash cow activities and neglect the long-term picture. In future, the convergence of seemingly unrelated trends originating from different industries will pose a major challenge to all business leaders.
Over and above hindsight and insight, foresight is going to be the crucial ingredient in the make-up of business leaders. The visionary leader will not only foresee and solve problems before they become endemic but will identify new opportunities long before competitors do.
Author: Michiel Jonker CISA, Dip Advanced Computer Audit, BA, PGDip Futures Studies is a Director: Advisory Services at Grant Thornton
Capital evolution
There’s a new way of raising capital that is taking the world by storm. This smart application of blockchain technology will create a number of opportunities and challenges for businesses and investors alike
Is all capital created equal?
Throughout the world, companies raise capital from investors for some combination of shareholding and debt. Whether it be angel funding, venture capital, private equity or public listings, generally speaking there is an exchange of financial capital (equity or debt) for financial capital (cash). Fair enough.
But what if there was a way for companies to raise financial capital in exchange for one of the other six capitals, such as intellectual capital or human capital?
ICOs, or initial coin offerings, may just do that. They have the potential to completely up-end the way that capital is invested and raised.
Since June 2017, at least four companies have raised more than $100 million through ICOs, including the highly touted Bancor, which is trying to change the way the global financial ecosystem works. According to coinschedule.com, at the time of writing this article businesses had raised more than $2 billion in capital via nearly 150 ICOs in 2017 alone. Sure, that’s a drop in the ocean compared to overall capital markets, but don’t discount the speed of change in today’s world.
Just look at Tesla, which only delivered its first vehicle in 2008, yet in February 2017 its value of $51 billion surpassed that of General Motors. General Motors was formed in 1908 and delivered 10 million vehicles in 2016, compared to fewer than 100 000 that Tesla delivered in that same year and without yet showing a profit.
It’s clear from that example – and many like it – that investors are willing to place a premium on ideas and the execution thereof (intellectual capital), or even on specific people involved in the business (human capital). Using ICOs, a business is able to access that willingness without having to give up an equity share in the business, and possibly with less red tape as well – at least in the short term.
What is an ICO?
At first glance it appears to be a mix of an IPO (an initial public offering used by companies listing on a stock exchange to raise capital) and crowdfunding (a less formal means of sourcing capital, often from the general public). Looking a bit closer, it’s clear that an ICO is much more than that. It’s a new asset class that uses blockchain technology to enable and empower an invested community.
If you don’t know what blockchain is yet, you should have at least heard of Bitcoin (you might even have bought some yourself, or at least been tempted to). Blockchain is the tech innovation making Bitcoin and the other cryptocurrencies (all 1 000 of them and counting) possible. Cryptocurrencies are basically decentralised digital cash systems represented by tokens.
During an ICO, a company creates its own cryptocurrency – digital coins or tokens – and makes these available to investors to purchase directly from the company. Investors can use either Bitcoin or its distant cousin, Ether, to purchase the token. This allows a company building an innovative new product the chance to monetise and fund their product upfront.
Investors should ideally be early-adopters and believers in the vision for the business being pitched. To try to eliminate the perception of the ICO being an equity issue, there is some type of right-of-use, or utility, attached to the token which is then given a value during the ICO process. In theory that value will rise as the underlying right approaches maturity, such as a product being developed and taken to market. This is where the investor can potentially achieve a return on their investment, or if applicable, ultimately redeem the token for whatever goods or services it was initially based on. The investor can also trade that token (since it is a cryptocurrency) for other cryptocurrencies should they want to exit the investment.
There is substantial risk associated with an ICO as an investor could admittedly lose their full investment. If the company or product fails and there is no value left to be attached to that right of use, then the token is worth nothing. This is no different from the world that investors already live in where decisions about capital risk are the norm.
At their best, ICOs are the most logical way to fund a business and make sure that interested parties can be investors. At their worst, ICOs are a digital Monopoly money that a business can use to raise capital without any underpinning value whatsoever. Where they lie on that spectrum between the two depends on who you ask. The risks are real, but so are the opportunities for a smart business and investor willing to understand this new asset class.
Why does this matter to investors?
There are currently two clear views – those who trust blockchain and those who don’t. This is rather ironic, since blockchain’s primary value proposition is creating (or replacing) trust through its distributed ledger technology.
China has moved to outlaw ICOs completely. Initially it seemed this was due to fear of the unknown, but it has since been suggested that they plan to have the first national cryptocurrency and simply want to control the market.
As blockchain increasingly proves to be a transformative technology, adoption is expected to increase and regulation in some form or other is inevitable.
South Africa’s largest banks have already formed a collaboration to develop a sovereign blockchain for South Africa. Private equity and venture capital firms are starting to structure deals using ICOs so as not to miss out on potential investments. The bottom-line is that all investors will in some way be exposed to ICOs (or a similar application of blockchain technology) in the very near future.
How can investors be better prepared for ICOs and similar offerings?
As an investor, you need to understand exactly what you’re getting. At the moment this is difficult with the information that is made available by these businesses raising capital.
Unlike IPOs, ICOs are instigated by the company raising funds. The company publishes a ‘white paper’ containing details of the proposed ICO. They’re not regulated, so these white papers are not standard and contain debatable amounts of useful information for investors.
The hype-machine obviously plays a role too, as some investors invest in the latest big thing while not fully understanding what they’re investing in. But again, this is no different from the types of investment decisions that investors are already making.
As the world of investing evolves, perhaps this is also an opportunity for ICOs to give investors better information and address concerns on both sides.
White paper, blue ocean?
One alternative is to build on the fundamentals of Integrated Reporting. The International <IR> Framework provides an excellent basis for a useful stakeholder report, although it’s most often used by larger listed businesses. There are elements that could be incorporated into ICO white papers, in something of a hybrid with a public-offering prospectus, that would help these businesses better consider their offering’s investment case, while also helping investors better understand the business case.
Sections of the framework such as those for ‘Business model’ and ‘Risks and opportunities’ would be welcome to investors reading a white paper. These, along with suitable diagrams to help make the value proposition more understandable, could potentially make the investment more appealing to a wider base of investors.
Having a higher standard for white papers makes sense if it adds value to both parties. Mere regulation wouldn’t be helpful and would likely become a tick-box exercise, but if the document adds value then it would be more readily adopted and hopefully even insisted on.
One way or another, the landscape is going to evolve as blockchain continues to contribute to a capital evolution.
With thanks to Monica Singer and Sven Wüsthoff who gave valuable input on drafts of this article
Author: Darren Gorton CA(SA) is Chief Financial Officer at SAIPA
SAICA’s new Health and Wellness Advisory group
It is widely acknowledged that non-communicable diseases (NCDs) are one of the major challenges for development in the 21st century. Currently more deaths are caused by NCDs than all other causes combined, with global NCD deaths projected to increase from 38 million in 2012 to 52 million by 2030.
Five NCDs – cardiovascular diseases (like heart attacks and strokes), cancers, chronic respiratory diseases, diabetes and mental illness – result in over 75% of deaths worldwide. These five diseases combined are colloquially referred to as chronic diseases of lifestyle because they are often caused or aggravated by unhealthy lifestyle behaviours.
The health of a workforce is a critical economic driver. There is a direct financial correlation between employee wellness and business outputs. With approximately 42% of all NCD deaths globally occurring before the age of 70, business as usual is no longer an option. Employers are realising they need to step up efforts to create and promote an enabling environment for healthy behaviours among their employees.
Employees with multiple risk factors for disease are more likely to be high-cost employees in terms of absenteeism, disability, reduced employee morale and significantly reduced levels of employee engagement and productivity – often referred to as presenteeism. These employees are also more likely to incur higher healthcare costs and so not only impact the financial performance of the employer, but also the wider economy. As such, there is a strong rationale and incentive for employers to implement and report on workplace health programmes targeting the primary prevention of risk factors and the early detection and management of NCDs.
Local and international research points to a positive correlation between a healthy workforce and improved financial performance. A study performed by Fabius et al1 identified a group of US companies who were Corporate Health Achievement Award winners and combined them into a portfolio. The stock market performance of this portfolio of healthy companies was tracked between 1999 and 2012 and an investment in this portfolio outperformed the S&P 500 by more than 50%.
A South African paper2 studied employee health promotion through corporate wellness programmes in South African companies. The study compared the stock market performance of ten of the healthiest companies in the country to the market at large. Nine different investment scenarios were tested and in all nine scenarios, the healthy companies outperformed the Johannesburg Stock Exchange All Share Index (ALSI). The conclusion reached was that companies which build a culture of health by focusing on the wellbeing and safety of their workforce yield greater value for their investors.
Many workplace health programmes have been implemented globally. Experience and evidence to date shows that a strategic and integrated approach is essential to address workplace health effectively. Employers that take a more comprehensive and planned approach to workplace health and wellness have seen increases in productivity and, ultimately, improved financial performance.
There’s no doubt that that there is a tangible correlation between healthy lifestyle behaviours and improved personal and organisational performance.
Corporate reporting has evolved from reporting only financial information to reporting information that gives stakeholders a detailed understanding of all aspects of the business, including the organisation’s past performance, its strategy, value creation and future outlook. Current reporting covers financial, environmental, social and governance elements. However, reporting on health has largely been neglected, even though the wellbeing of employees has a substantial impact on business success and sustainability.
The next evolution in corporate reporting is the emergence of reporting on the health and wellness of the workforce – the integration of health metrics into traditional corporate reporting. These health metrics should align with, and expand on, existing reporting frameworks like the International Integrated Reporting Framework and Global Reporting Initiative’s GRI Standards.
Health metrics add to a more comprehensive interpretation of human capital, one of the six capitals included in the Integrated Reporting Framework. Integrated reporting such as this adds a new dimension to existing labour and health disclosures in the GRI standards.
Health metrics need to be applicable to the entire working population, material, understandable to non-health professionals, comparable across organisations, and motivational. High-level categories include, but are not limited to, reporting on the company’s:
- Culture of health
- Leadership
- Investment in health culture
- Health and wellness measurements
- Health and wellness awareness and promotion
Measuring employee health and wellness provides an indication of the wellbeing of the organisation. It is also a direct indicator of the wellbeing of a country’s workforce, making health reporting a national priority and not just a corporate one.
Health reporting can help organisations create and promote environments for healthy behaviours, which will extend not only to employees but also to their families. This can result in healthier workforces as well as healthier cities and countries.
The push for this also meets the government’s call to action for the private sector to partner with the public sector in responding to the challenge of NCDs. This helps organisations fulfil their shared value and corporate citizenship obligations, and can have profound positive effects on individuals, companies and societies as a whole.
With these pressing issues at hand and since it is the right thing to do for the country, SAICA has set up a committee of prominent businesses and academic institution(s): Barclays Africa, Discovery, EY, FirstRand, IDC, Nkonki, Old Mutual, Standard Bank, and the University of Stellenbosch Business School are all supporting this initiative to lead the process of including health and wellness reporting into integrated reporting. This will enhance reporting disclosures with the main aim of improving health, wellness and productivity in South Africa, Africa and globally.
‘The role of employee wellness is critical in improving the sustainability of a company. Not only does it dictate the culture, but it also drives the productivity of a company. If we assessed two identical companies, where one company has highly passionate and motivated staff, while the other company’s staff tends to despondency. The common sense outcome would be that the company with the positive culture would be more sustainable and therefore have better performance. Therefore, it is imperative that companies focus on the health and wellbeing of their employees, and the HWAG are looking to support that focus.’
It is without a doubt that organisations that comprehend the trade-offs between its capitals, therefore risks and opportunities thereof are likely to be more sustainable. Human Capital, being the heartbeat of any organisation, has not been appropriately accounted and reported on for users to fully appreciate the impact it has on the other capitals, strategy and business model of an organisations. As we embark on this journey as the HWAG we hope we can ignite positive and constructive relook at the human capital and in particular the health and wellness of employees by both organisations and a wider stakeholder grouping’
― Thuto Masasa, Head External Audit, Nkonki
Authors: Zafroulah Hassiem, Chair of Health & Wellness Advisory Group, Old Mutual
NOTES
1 R Fabius et al 2013, The link between workforce health and safety and the health of the bottom line: tracking market performance of companies that nurture a ‘culture of health’, Journal of Occupational and Environmental Medicine, 55(9):993−1000.
2 C Conradie, W Smit and D Malan 2016, Corporate health and wellness and the financial bottom line: evidence from South Africa, Journal of Occupational and Environmental Medicine, 58(2):45–53.
Accountants to save the world
Peter Bakker, the CEO of the World Business Council on Sustainable Development, is quoted as saying ‘Accountants will save the world.’ Superhero is not a status usually associated with the profession. What could he mean?
In 2011 Puma, working with TruCost, published the first Environmental Profit and Loss Account. They attempted to quantify all the environmental externalities embedded in their products and recognise these on the P&L. They concluded that if they actually had to bear these costs, they would still make a profit, but it would be far lower. This led them to adjust their long-term strategy around what that would produce and the raw materials they would use. Incidentally, the head of strategy for Puma at the time commented that if they included social externalities they would make a loss. Under these conditions, she asked, is the company really sustainable?
The issue of correcting market failures through adequately understanding externalities is clearly not yet mainstream. But it is becoming increasingly so. Witness the carbon and sugar taxes. A recent report by the Task Force on Climate-related Financial Disclosures (TCFD), a sub-committee of the Financial Stability Board and ultimately the G20, recommended that companies disclose the consequences of climate risk in their financial disclosures (note the financial disclosures). This is a recommendation not being made by environmental NGOs but by mainstream financial services practitioners and investors from global financial institutions.
This management and quantification of risk is the flip side of opportunity. Clearly the economy we have does not provide for our economic, social or environmental needs and requires significant economic and social transformation. A recent report by the Business and Sustainable Development Council concluded that implementing the Sustainable Development Goals (SDGs) will unlock US$12 trillion of value globally across 12 system change opportunities and create 380 million jobs. The SDGs therefore represent a new model for economic growth, a roadmap to sustainable development. In a similar vein, work by the National Business Initiative and Accenture concluded that the opportunity for business in sustainability across Africa is a conservative $350 billion a year.
Achieving the objectives embedded in the SDGs will require an accurate quantification of the risk and the opportunity and embedding these quantitative numbers in strategy and new business model development. Returning to Mr Bakker’s point, we cannot do this without effective accounting. We need to be able to capture the value created and the risk averted in our financial reports. We need to build social and environmental capital and be able to share our progress with our shareholders, and build greater trust with our stakeholders in general. We need to be held accountable to keep doing it.
Ultimately this means developing appropriate accounting methodologies that account for environmental and social costs in a comparable way and inculcate them in our accounting rules. Not only will this enhance business brand value but, as Puma demonstrated, change they we think about our business and what we produce and consume.
It will also save the world.
Author: Steve Nicholls is Head of Environment, National Business Initiative
Integrated Reporting Project Awards
The top three winners share some of their findings …
The KPMG/UJ Integrated Reporting Project is a joint project between KPMG and the Department of Accountancy at the University of Johannesburg. The project required accountancy students to analyse a JSE-listed company’s report in accordance with the International Integrated Reporting Framework (IR Framework).
The top six performers were carefully chosen through a rigorous selection process, and in addition to presenting to a panel of judges, they were required to respond to questions from the judges. The students did not make the judges’ decision-making any easier, as it was evident that each student had put a great deal of time, effort, thought and insight into their presentation. However, the judges could only choose three. The judges were inspired by the calibre of students presenting that evening and their enthusiasm and insights are shared with you here.
Stephen Govender 20, Second Year Bachelor of Accounting, University of Johannesburg
What was the most important lesson you learned from this project?
It is apparent that an integrated report is founded on the concept of integrated thinking, which in business can be regarded as understanding the business beyond the profit-making motive. Integrated thinking is understanding that a business comprises many components which do not work in isolation, and the success of the business depends on the overall synergy these components achieve as a unit.
The concept of integrated thinking is a fundamental part of good corporate citizenship. Modern corporates must realise that society views them as more than business enterprises – they are active members of society. Integrated reporting is a key tool for businesses to practice good corporate citizenship, which forces those tasked with governance to genuinely assess the businesses’ contributions and effects on society beyond simply making profits and paying taxes. Integrated reporting works for both the business and the stakeholder in that businesses must remain conscious of key stakeholders and integrated reporting gives valuable information to stakeholders to hold business leaders to account.
What advice would you give companies starting to prepare their first integrated report?
The most important things for a business attempting its first integrated report are to start early and make the highlights of the business’s story understandable. Starting early entails beginning the process of compiling your integrated report a year before it will be released. The report should be a living document that changes as the year progresses. For it to genuinely reflect a year’s worth of operations, a year’s worth of consideration should go into creating it. In terms of making the report understandable, innovative methods must be used to convey information. Innovation is at its best when a simple solution is employed – masses of complex figures should be presented to a reader in a format which is both effective and understandable. The key to making integrated reports a success is to ensure that any person with limited knowledge of the business can simply pick up the report, read and understand the content. The goal of integrated reporting is not to simply provide stakeholders with information but to provide valuable information, which hinges on the information being relevant to the average member of society.
What were some of the findings from your research?
The two most important findings were that the business model is a pivotal part of the integrated report and that telling the value creation story in a concise manner is difficult. The business model is complex, and successfully compressing the business model into, for example, a two-page spread is the cornerstone of a good integrated report. The best reports achieved this by acknowledging their inputs, processes and outputs in a simple, easy to follow diagram that a person with limited knowledge of the business could comprehend. However, a larger objective is to make the entire report as condensed as possible while still telling the business’s story well.
The value creation story of a business is the content of an integrated report. The problem is that even if the report is limited to the year’s highlights it can become a lengthy document. Conciseness is a core principle of integrated reporting, therefore only the most material information that will add value to a stakeholder’s interaction with the business should be included.
Allister Dimaculangan 20, Second Year Bachelor of Accounting, University of Johannesburg
What was the most important lesson you learned from this project?
Integrated reporting is not about communicating business-related matters and figures in the most detailed manner for a select number of stakeholders that understand commerce. A company makes use of various resources (or capitals) for their own benefit, and it is the company’s responsibility to inform their stakeholders how efficiently and effectively they make use of these capitals, not only for their benefit, but for the benefit of their surrounding environment which is affected by their operations.
Financial communication is no longer effective to gain the trust and investments of prospective stakeholders; social and environmental factors are now of utmost importance due to company operations affecting these factors greatly. Companies should adopt an attitude of inclusivity since they cannot operate on their own and stakeholders should have the right to know to what they contribute time and money towards.
What advice would you give companies starting to prepare their first integrated report?
Companies should first acquaint themselves with IR. This document contains important ‘content elements’ and ‘guiding principles’ which will aid companies in compiling the integrated report. It consists of the purpose of integrated reporting and fundamental concepts which are important for companies to understand, to aid with communicating effectively to a broad stakeholder audience.
Companies should reference the Integrated Reporting Awards documents for public or state-owned companies. These documents provide in-depth analyses of top companies’ integrated reports, how their reports complied with the framework and stood out from the rest, and could be a useful benchmark exercise against other reports.
It would also be beneficial to seek consultation with the experienced and top-performing companies in this regard.
Although the framework document provides substantial guidance on compiling an integrated report, verbal assistance and testimonies can be of additional help since companies can have different approaches and understanding of guiding principles.
Finally, a creative layout throughout the report with pictures and diagrams are needed. The report needs to be aesthetically pleasing for the reader in order to keep him or her reading the report.
What were some of the findings from your research?
Companies operate efficiently and effectively only if they are aware of their organisational environment. Issues regarding social, economic, environmental and technological matters affect how organisational operations would be carried out. It is important for companies to identify and understand these as any of these factors could become the reason for a company’s downfall if misinterpreted or ignored.
Stakeholder relationships are important to maintain. An integrated report needs to applicable to most stakeholders who will have adequate comprehension levels of the quantitative and qualitative information published in their report. If a company engages with stakeholders effectively by using various platforms, as well identifying them and their needs, it would then be able to compile a relevant report.
Companies that are experienced integrated reporters, have managed to combine the ‘content elements’ together, or compiled them in such a way that each element is not isolated in the report, but connected to one or more elements elsewhere in the report. Information connectivity is crucial for stakeholders to see how aspects of the company affect each other. Without connectivity, the report would not be ‘integrated’ at all.
Caylin Jade Walker 20, Second Year Bachelor of Accounting Sciences, University of Johannesburg
What was the most important lesson you learned from this project?
SAICA’s slogan is develop – influence – lead. These are the exact things learnt from this project. This project has developed my integrating thinking and creative presentation skills. It has influenced me to not only focus on understanding the technical aspects of my degree but rather focus on how the skills and knowledge obtained can help make a better South Africa: a country in which companies are transparent and provide a holistic view point to their stakeholders. Integrated reporting ensures that companies are not only meeting their set profit margins but are also actively involved in meeting their social responsibility, for example CSR projects.
Finally, this project has ultimately demonstrated that we students are not just the future external or internal auditors, financial directors and CEOs but rather the leaders of change.
What advice would you give companies starting to prepare their first integrated report?
First, familiarise yourself with the eight content elements and guiding principles contained in the Integrated <IR> Framework. Read through other companies’ integrated reports. This will help provide a basic report structure and ensure that good quality information is presented.
Second, don’t get caught up in detail. It is important to remember who the users of your integrated report will be. Truth be told, most stakeholders don’t have the time to read lengthy reports. Thus keep your integrated report concise by only including information that is relevant and enhances the users understanding.
Third, it has been said that a picture paints a thousand words. This saying is also true to the ‘art’ of integrated reporting. Layout and presentation are as important as content. Therefore be creative by making use of smart art and flow charts but ensure that the information presented remains understandable.
Finally, present a transparent and balanced integrated report. This means reporting on both the favourable and the unfavourable events that took place. Also, never present information that can be perceived as slanted, overstated or understated.
What were some of the findings from your research?
Some of my key finding are:
The company that I looked at as well as their competitor lacked strategic direction as none of their strategic objectives had timeframes, measures of progress, or completion statuses.
The content element of risk and opportunity is their report’s strength and weakness. Risk management processes are extensively discussed through the use of materiality. However, they neglect to identify their opportunities, which may lead to future missed opportunities.
The guiding principle of reliability and completeness ensures that information is presented in a balanced manner and without any material error. This guiding principle is neglected in the company’s integrated report because information presented on their summary pages have no comparable figures. This information can therefore be either overstated or understated to make the figures look more favourable to the user.
Another highlight of their report is their use of creativity throughout. They made use of diagrams, flow charts and comparative tables to display both qualitative and quantitative information.
‘The content and quality of the students’ presentations have improved substantially since last year. I am particularly impressed by the level of creativity expressed by them in presenting their findings.
‘They demonstrated a clear understanding of integrated reporting concepts during the panel discussions and remained calm under pressure. I am very proud to have participated in the event and hope this initiative will continue.’
― Lelanie Sherman CA(SA), Reporting Strategist at Greymatter & Finc
