For Jason Voss, content director at the CFA Institute and former portfolio manager with Davis Selected Advisers, investors have two primary responsibilities: to see the world for what it is, not what they would like it to be, and then to be decisive. In a regulated industry like financial services, two rules for investors seems straightforward and simple. The reality, of course, is anything but.
According to Jason, that’s partly because most investors don’t have the information they need to see the world for what it is and then act on it. Traditional financial statements, he says, are really a list of a company’s stakeholders – from shareholders to employees to governments – but they don’t tell the full story. Integrated reporting, through its focus on capitals, enables companies and their investors to have a much broader discussion about value.
Intellectual capital is one of the most recognized forms of capital that is left off balance sheets. But for some companies and industries, it’s integral to the proper valuation of an organization. Jason also cited the grocery industry as an example of when accounting statements fail to provide a clear view of financial health. Considering how labor intensive the industry is, investors need more human capital data – like employee turnover rates and cost of training -- to make a sound decision about its value.
But integrated reporting isn’t just a better tool for valuation; it moves companies toward a systems-thinking approach that impacts the management of the organization. To do that right, Jason says, requires change beyond the report preparer level. He points to five ways we can collectively catalyze this evolution:
- Superstar reporters: A major company with a lot of influence in the market supporting integrated reporting could go a long way in shaping investors’ and other reporters’ attitudes toward IR as the preferred framework.
- Active managers: Despite recent trends toward passive investing, active managers continue to influence companies and can create a “pull” demand for more integrated reporting.
- Accounting standard setters: Voluntary reporting is a real trend that has an impact on investing, but to change the system, the capitals need to be included in financial statements.
- Integrated reporting guidance: Reporters are still learning and testing the IR framework; guidance on how to do it right will ease the transition.
- Superstar advocates: Powerful investors – think public pension and sovereign wealth funds – have a history of influencing corporate behavior and could accelerate the adoption of the IR framework through shareholder engagement.
This was a powerful conversation about how to move forward as a community. Join us to continue the conversation at our next Integrated Reporting conversation with Jones Lang Lasalle on February 7 at 3 pm EST.
Post authored by Rachel Riccardella of Kite Global Advisors, a thought leadership advisory firm helping clients shape the debate on the issues that matter most to them.