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The final plenary session held at the recent World Congress of Accountants in Rome, on Integrated Thinking, The Key to Improved Performance and Value Creation, clearly demonstrated how an organization’s core business values and strategy drive its integrated reporting (<IR>), and ultimately its business resilience. As Nick Holland, CEO of 128-year old mining company Gold Fields, highlighted when talking about his organization’s vision of shared value among various stakeholders, “If a company cannot continue as a self-standing business, it cannot serve anybody.”
Thomas Kusterer, CFO of Energie Baden-Württemberg AG (EnBW)—one of the largest energy companies in Europe—and Alexsandro Broedel Lopes, Chief Financial Controller of Itaú Unibanco, spoke of integrated thinking as a pre-requirement for long-term sustainable value creation. As senior finance professionals, they also highlighted the importance of board ownership and CFO accountability to strengthen the connection between integrated thinking and reporting.
Thomas Kusterer reinforced the importance of corporate finance playing a crucial role in changing corporate thinking and behavior, in cooperation with other business areas. Integrated thinking means that integrated reporting is inextricably connected to the organization’s management processes concerning resources, relationships, risks, and opportunities—in both strategy and daily management.
EnBW´s approach to integrated thinking comprises a holistic target-based performance management system including financial and non-financial KPIs. Kusterer’s key message was that CFOs need to ensure that integrated reports represent reality and therefore need to ensure the organization’s approach to strategy and performance management is reflected.
Rather than thinking of integrated reporting as someone else’s job, financial professionals should see it as a natural extension of the role of the CFO and the finance function. As David Hodnett, Finance Director of Barclays Africa Group, stated in a recent Accountancy SA article, Integrated Reporting: The Role of the CFO, “I am accountable for reporting on the performance of the company, including the information that our executive management and board consider in decision making. By leading the integration of performance measurement of the other capitals, the CFO is able to enhance reporting beyond just financial capital.” Furthermore, integrated thinking and reporting should take engagement between investors and companies to a new level (see Attracting Long-term Investors through Integrated Thinking and Reporting).
It is clear from organizations that are embracing <IR> that the CFO has a central role to play in pulling together the diverse strands to transform integrated reporting from an aspiration into a reality, and to ensuring that the organization truly benefits from the exercise. This critical role was emphasized at a recent conference in Kuala Lumpur hosted by the Malaysian Institute of Accountants and the Chartered Institute of Management Accountants, at which Professor Mervyn King, Chairman of the IIRC, said, “CFOs must apply integrated thinking to understand all the inputs used by an organization and the impacts on society and environment, and use integrated reporting to communicate the holistic story to stakeholders.”
As organizational integrators and navigators (see The Role and Expectations of a CFO, IFAC, 2013) CFOs—together with their CEOs—leverage their broad perspective of their organizations. This involves being able to facilitate a common and unified view of the organization’s strategic objectives, opportunities and threats, business model, and critical success factors—including resources, capabilities, and competences—needed to deliver the strategy in relation to changing circumstances and environmental factors and trends.
Ultimately, integrated thinking and reporting success requires ownership by the board—it is responsible for ensuring management and reporting of significant and material issues affecting the organization. Nick Holland referred to Gold Fields’ top 10 risks, which are discussed in its 2013 Integrated Annual Review. Six of these risks are related to environmental, social, and governance matters that require the attention of the board and management and will be leading indicators of financial performance in the future. These are material matters that potentially impact Gold Field’s ability to create and preserve value over time.
To ensure integrated reporting credibility, oversight by the audit committee is also critical. The CFO should work with the audit committee to ensure it oversees effective processes and accountabilities across all forms of reporting and disclosure to investors and other stakeholders. A recent publication, Integrated Reporting: A Guide for Audit Committees in Australia and New Zealand, usefully highlights key questions for audit committees and boards to ask of management.
Board ownership backed by CFO accountability will go a long way to instill confidence among investors and other stakeholders that integrated thinking and reporting is truly part of the fabric of the organization. Seen only as a mindless compliance exercise, integrated reporting will benefit neither the organization nor its stakeholders and could well lead to a perception that an organization is not being managed in a way that it can create sustainable value. CFOs and their finance teams have the means to ensure integrated reporting leads to sustainable and resilient organizations.