South Africa’s top 40 companies listed on the JSE have made good progress in their corporate reporting initiatives. Despite progress being made, companies still have the potential to develop their reporting further.
These are some of the highlights from PwC’s ‘Value creation: The journey continues’ survey issued today. The survey process involved an analysis of the integrated reports of the top 40 companies listed on the JSE during the review period covering the 2013 calendar year. The assessment was based on PwC’s integrated reporting model and linked to the Content Elements of the International Integrated Reporting Committee’s (IIRC) International Framework.
Zubair Wadee, PwC Assurance Partner, says: “Building and maintaining trust has never been more important and challenging for the corporate world. What customers, suppliers, employees, governments and society in general expect from business is changing focus. The integrated report has come to the fore as one of the most prominent channels of communicating with stakeholders.”
The integrated report seeks to align relevant information about an organisation’s strategy, governance systems, performance and future prospects in a way that reflects the economic, environmental and social impact it has on the environment in which it operates.
Professor Mervyn King, Chairman of the IIRC and Chairman of PwC’s Business School, says: “As we approach the first anniversary of issuing the first International <IR> Framework, the question arises: has the Framework started to catalyse the type of change that was envisioned with its creation?
“Integrated reporting is gaining traction globally as evidenced by the positive comments on <IR> by UNCTAD and the B20 of the G20 countries. Notwithstanding this, preparers are striving for quality integrated reports.”
This year companies have attempted to ‘cut the clutter’ in their integrated reports by removing information or moving it to other reports that provide more detail, or making it available on the company’s’ website. Most companies have opted for a ‘suite’ of reports (85%) rather than issuing a single integrated report (15%). As was the case in last year’s findings, companies still tend to focus on historical reporting, with limited insight being provided about prospects for the future.
Findings were grouped by Content Element and then evaluated according to three broad categories: clear opportunities to develop reporting; potential to develop reporting; and effective communication.
This year, once again, reporting on business model as well as strategy and resource allocation delivered the most effective communication. Reporting on governance was the area which appeared to require the greatest improvement.
Governance
Some description of the actual activities undertaken by the board was provided by 41% of the reports, while 33% of reports were assessed as having accomplished good reporting practice and having reported on the actual activities of the board. None of the company’s surveyed provided effective disclosure about succession planning. Further, no mention of a policy or a target for diversity could be found in 46% of the reports, while 36% of the reports provided a brief reference to supporting policies on diversity.
Wadee says: “Organisations that integrate good governance reporting into their integrated report provide a more holistic view of how governance and their business decisions interact and instils confidence with regards to the quality of management and overall credibility of reporting.”
Business model
The reporting on the business model has consistently proven to be one of the areas where the most effective communication has been achieved, with 71% of organisations making reference to their business model.
Risks and opportunities
The vast majority of companies surveyed (95%) showed the potential to develop risk reporting and to integrated their assessment of risk into other aspects of the report (54%).
Strategy and resource allocation
The importance of an organisation’s strategy is highlighted by the fact that strategic focus is one of the Guiding Principles of the <IR> Framework, as well as a Content Element.
More than three-quarters (82%) of companies explain their key strategic priorities, but only 8% make a clear distinction between short, medium and longer-term strategic priorities. More than half (61%) of companies surveyed reported on the outcomes of strategic activities and clearly set out performance measures that management use to monitor whether these are being achieved.
Performance
The overall results of the survey show that there is significant potential to develop reporting on performance, with only 10% of reporters effectively communicating their holistic performance to users.
Outlook for the future
According to the survey, much of what companies currently report tends to be backward-looking and fails to provide stakeholders with sufficient information to make a meaningful assessment regarding the organisation’s ability to create and sustain value over the short, medium and long term. The research shows that only 26% of reporters provided effective communication of their future viability in terms of availability and constraints on material capital inputs, a slight improvement on last year’s study.
Wadee concludes: “Integrated reporting will have achieved its objectives when boards apply integrated thinking in making their decisions. Whilst we have seen some progress on the reporting front, there is still much work to do to on the path to integrated thinking. We are considered to be leaders in the field of integrated reporting. To continue holding this mantle we will have to continue to be innovative and ensure that all we do continues to build trust.””