Integrated Reporting for Boardroom Accountability and HCM: CIMA Viewpoint

September 21, 20159:53 am2428 views
Integrated Reporting for Boardroom Accountability and HCM: CIMA Viewpoint
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The advent of Integrated Reporting (IR) has remarked a revolutionary shift in the corporate reporting landscape with great implications on the HR function, especially in the areas of boardroom accountability and human capital management (HCM).

The process of integrated thinking that underlies Integrated Reporting (IR) will enable employees to foster a greater sense of camaraderie by providing an interdepartmental collaborative approach to corporate reporting.

Through an exclusive interview with Brad Taylor, Director of HR and Performance at CIMA (Chartered Institute of Management Accountants), we explore insights on how integrated reporting will empower businesses to work together on initiatives that drive organisational growth.

Also IR provides HR professionals with an effective tool to overcome the challenge of converting human capital into language of the boardroom. Let’s explore the relevance of integrated thinking, its benefits and implications to the HR function.

What are the challenges to Human Capital Management (HCM) in the 21st century in APAC markets? How does IR help HR professionals and organisations alike overcome these challenges?

Although each country has its unique set of challenges, we now exist in a global context. Businesses across all regions are faced with the need to reconcile their strategies to achieve sustainable success while operating in a VUCA (Volatile, Uncertain, Complex and Ambiguous) world.

Similar to other regions, Human Capital Management (HCM) in Asia Pacific markets (APAC) is impacted by a variety of issues. For example, many businesses are still not reporting on their intangible assets such as human and intellectual capital.

Low levels of understanding around the relationship between leadership and people management can be observed. Language is also proving to be a barrier for many businesses and investors taking up HCM reporting may not possess enough understanding about the key terms or measures involved in HCM data.

Integrated reporting (IR) can help businesses manage all of these issues – by increasing transparency around the value creation activities, irrespective of their location in any organisation. IR provides HR professionals with the tools to deliberate, think and describes the role of HCM in the value creation process.

Brad Taylor, Director of HR and Performance at CIMA

Brad Taylor, Director of HR and Performance at CIMA

What are the implications of Integrated Reporting (IR) in HR and how will it help human resource professionals?

We are all accustomed to reading grand statements like “Our people make the difference” or “Our people are our greatest assets” in annual reports.  However, more so often these statements are not followed up with further insightful analysis or reporting, thus leaving the report user bewildered on how management optimises the value of this “asset.”

Integrated Reporting with the business model at its heart provides a structured framework for organisations, around which the value created by HCM can be assessed and narrated.

CIMA is partnering with the Chartered Institute of Personnel and Development (CIPD) on a project called “Valuing your Talent”. This project aims to strengthen your understanding of the value of human capital to organisational value generation.  The business model is at the core of this collaboration. Therefore, it provides a strong framework for integrated thinking and integrated reporting.

How does IR help facilitate greater boardroom accountability for HR professionals?

The language of the boardroom is Finance.  This may be one of the key factors why the HR function reports to the CFO in many businesses.  The CFO becomes the filter through which HR management initiatives and processes should trespass on their way to the boardroom.

By getting a strong grip on the IR, the HR professionals can learn and start using the language of the boardroom to explain the value of their HC initiatives and processes.

See: 5 Efficient Tools for Human Capital Management

How can IR offer an innovative reporting approach for companies to identify and realise the hidden competitive advantages in their human capital, while effectively communicating its value to stakeholders?

IR allows businesses to focus on things that are important to them, while trying to maintain or develop a competitive edge – Strategy, Business Model and Value Creation.

IR requires transparency, therefore it encourages the removal of any silos that may impede this; it also helps reduce duplication and creates better levels of cohesion and efficiency. These benefits allow companies to better understand all facets of their business that create value.

How does IR help human capital management to seek beyond – managing talent, resources and cost?

Because Integrated Reporting is ultimately focused on outcomes, it provides a framework that helps managers think through the inputs, activities, outputs and outcomes all relating to the capital requirements for generating value to all stakeholders.  As a result, thinking naturally evolves beyond just costs, inputs, and outputs.

How can Integrated Reporting help companies develop a long-term plan for the strategic growth and management of talent, resources and cost?

Integrated Reporting focuses on short, medium and long term value creation.  It is vital that short-term decisions do not adversely impact long term prospects.  IR enables management to explain how decisions that may not be popular with stakeholders in the short term are best for the long term prospects of all stakeholders.

How can organisations enable effective integrated thinking and decision making across all levels?

In order to enable effective integrated thinking and decision making at all levels of businesses, company leaders must have a clear understanding of their business model and strategy. Once this foundation is in place, they can then explore the structural capitals of their firm.

This is very different from just glancing through the financial capital structures of a business. It closely examines all the resources of the capitals combined to include both tangible and intangible resources.

IR provides business leaders with the knowledge and in-depth understanding of their business to guide staffers and disseminate unnecessary information, such that everyone involved in the business development understands their role and how they can help businesses achieve success.

What is an Integrated Report? How can this tool help organisations refine their value creation processes?

Integrated Reporting (IR) is a process founded on integrated thinking that allows an organisation to tell its story of value creation over time.  Integrated thinking is an active consideration of the relationships between an organisation’s various operating and functional units and the capitals that it uses or affects.

An integrated report is a concise communication about how an organisation’s strategy, governance, performance and prospects, in the context of its external environment, leads to creation of value in the short, medium and long term.  It is time for accountants to start focusing on the business as a whole, rather than solely on the balance sheet.

Integrated thinking, a core capability of management accountancy, promotes a thorough understanding of an organisation’s business model which in turn helps to refine the value creation process.

How to prepare an integrated report? How does the organization determine what should be included in the integrated report and matters that should be quantified or evaluated?

To anyone who has to prepare integrated report, the IIRC (International Integrated Reporting Council) has published a Framework document in December 2013. There are three key features of the Framework document:

Fundamental Concepts: These underpin and reinforce the principles-based requirements and guidance set out in the Framework.

Guiding Principles: The Guiding Principles (GP) form the content of an integrated report and how information is presented.

Content Elements: The requirements in an Integrated Report with respect to the content elements are expressed as questions that should be answered in an integrated report. They are best expressed in a way to narrate the organisation’s unique value creation story by emphasising on the connectivity between each content element.

Do you see organisations implementing IR approach in APAC countries? If yes, what is the success ratio post implementation? Share some examples and case studies.

Last year, CIMA published ‘The <IR> Landscape: Executive Perceptions of Integrated Reporting’ to feature the results of a global survey of chairmen, CEOs and CFOs.  Over 80% of the respondents recognised the potential for <IR> to deliver success to businesses and 92% had already identified benefits of integrating financial and pre-financial information.

Strong evidences prove that implementation of integrated reporting and integrated thinking will deliver long term advantages to those that adopt it.

For example, Sime Darby, one of Malaysia’s major businesses published its first integrated report in 2014.  The report states that the Group is adopting this evolving area of best practice as part of its journey and commitment towards sustainability, transparency and effective corporate reporting.

The report aims to acknowledge the relationship between economic, environmental and social considerations, while recognising the impact of IR on companies to pursue sustainable value creation.  Performance metrics not only cover financial capital but also include other facets such as people, talent and the environment.

Sime Darby used the report to provide:

  • An insight as to how their strategic objectives create and sustain value for the company and its various stakeholders
  • Performance of the company against their targets
  • An indication of where they aim to be and how they plan to meet and address targets, expectations and challenges

Another example is DBS – the first company in Singapore to adopt Integrated Reporting. The annual report of DBS reflects the principles of connectivity, strategic focus and future orientation. The company uniquely used a balanced scorecard approach to maintain a long-term perspective in line with the interests of multiple stakeholders.

The first part of the scorecard comprises of KPIs and strategic objectives set for the current year. The second part of the scorecard sets out initiatives by DBS intended to complete in the current year, as a part of its long-term journey towards achieving strategic business objectives.

Adoption of Integrated Reporting in APAC region is still at its very nascent stages, to measure the success or failure rate. However, companies who have adopted Integrated Reporting (IR) like Sime Darby, DBS and others, continue to use this tool.

 “Singapore Exchange’s recent move to mandate sustainability reporting for listed companies by 2017 is one step forward in line with the evolution in global reporting trends.” What are the steps taken by Singapore towards implementation of IR and positioning itself as an important player in influencing global reporting standards in South East Asia?

The Singapore Accountancy Commission (SAC) is extremely supportive in helping to create a more sustainable society and build trust within stakeholder communities. These are two important features that IR will enable organisations to achieve in order to meet the challenges of a changing business landscape.

As a lead government agency for the Accountancy Sector, the SAC has taken steps to encourage the broad adoption of Integrated Reporting. These include working with key partners to promote IR; organising an Integrated Reporting Forum with Paul Druckman, CEO of IIRC, as keynote speaker; developing a practice guide with National University of Singapore (NUS) to address risks and opportunities in an Integrated Report by producing a comic strip that aims to educate retail investors of the benefits of IR.

We are now seeing many organisations (both listed companies and government bodies) such as DBS Bank, City Developments and Maritime Port Authority share their value creation stories with stakeholders.

With Singapore yet to fully embrace Integrated Reporting, every effort towards better corporate reporting is a valuable one. The move by bigger organisations to have an open conversation with their stakeholders will help validate the purpose and value of IR, to inspire and open more doors for smaller organisations in Singapore and around the region to do the same.

Also read: Balancing the Promise and Pitfalls of Human Capital Analytics

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