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I don’t get these phrases, but first could, you give me some background knowledge as to why integrated reporting is important and want purpose does it serve? I just see it as another added bureaucracy of disclosure making, making life harder for everyone. (well just my opinion and don’t intend to hurt anyone) but just can’t see the use! I’ve read the OT notes containing guiding principles, content elements, definition, etc.. everything. But I don’t see any practical use of it… and what’s the thing with creating ‘value’ isn’t “value” just the same as “profits” so please give me some background info.
Also, what do these phrases mean, regarding the overall goals of <IR>:
1. To promote the understanding of the inter-dependencies among the various capitals
2. “To enhance accountability and stewardship for all forms of capital”
The second phrase that you want me to explain actually tells it all! The enhancement of accountability and transparency and the stewardship (looking after) of all the various forms of capital (financial, manufactured, intellectual, human, social and relationship, and natural)
Ok, you can view it as just some more padding to an already overflowing mass of detail in an annual report but, if nothing else, it brings to the attention of the directors their effectiveness and efficiency in managing these different forms of capital and reminds them that, even though they themselves may not care about the use of these resources, there are others out there who do care and will be quick to criticise where it becomes apparent that any group of directors doesn’t share the same attitude of social responsibility
“and what’s the thing with creating ‘value’ isn’t “value” just the same as “profits””
Er, no! Value is not the same as profits. The beauty of the English language is that although some words have multiple meanings, we also are able to distinguish between value and profit.
For example, a painting that is valuable is not profitable and a business that is profitable is not necessarily valuable
To add value to a commodity is not necessarily making it profitable and to say “I value your friendship” is not putting a price on that friendship
In these days of “global warming” and melting ice-caps, there is an increasing awareness of the delicate nature of the environment and disclosure about reduction of CO2 emissions, reduction in water usage and increase in recycling is of major interest to environmentalists (and should be of similar major interest to us all)
Look on it as further nonsense that no-one will read if you want. But it does have the effect of making directors even more aware of their corporate social responsibilities!
:-))
“It’s the return of the sixties…hippies now want the stuff they care about in annual reports.”
Seriously though, business has always tried to monetise and quantify its assets, liabilities and equity. This is just another step in the realisation that an entity is more than the mortar and bricks making up the foundation, or its big bank account. It is also about the people it employs, the resources it uses, the waste it produces and how it manages all these interconnected systems. While it may be difficult to monetise these (and accounting standards are yet to be developed to do this, largely due to the subjective nature of valuations and the severe deviation from fundamental accounting principles), it allows companies to assess those “what if” situations and determine how effectively they have reduced, accepted, avoided or transferred these risks. It allows market participants to better price a business. For example if a business is largely dependent on a dynamic CEO who drives all innovations and the company’s product line largely depends on resources found only in Russia, then how could the simultaneous death of the CEO and the freezing of exports from Russia affect the viability of the company and hence its share price?
All these, while they may not add to the profitability of the company, may add value and as a result boards of directors need to think more about these issues and indicate to shareholders and potential investors that they are taking a more holistic approach to corporate governance. It may even result in more women making it to the board rooms.
By the way excellent response @MikeLittle
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