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A new global study is calling for businesses to give a truer account of company performance or face losing stakeholder confidence.
In its ‘agenda for debate’ PwC , the Chartered Institute of Management Accountants (CIMA) and think tank Tomorrow’s Company warn the days of measuring performance by profitability at the exclusion of other outcomes are ending.
“A sea-change in global trends means non-financial reporting is growing in importance” says PwC’s Auckland Managing Partner Michele Embling. “We must respond now or New Zealand businesses will be burdened with catch-up costs and missed opportunities later.”
The study – Tomorrow’s Corporate Reporting: A critical system at risk – says current corporate-reporting standards are rooted in a 150-year-old “take, waste and make” approach to business. It challenges industry bodies to develop an integrated reporting system to better meet today’s “people, planet and profit” needs.
“New Zealand is going down a path of more regulation, more complexity with a greater financial focus, without adding any clarity to how we report performance. So many other factors influence a company’s value, its reputation and future money-making prospects beyond financial performance.
“We need to take stock and discuss how we can create a reporting system that isn’t bogged down with technical compliance, but is easy to understand and gives a complete picture of business health and rebuild trust in our capital markets,” says Mrs Embling.
By examining the dynamics and structural weaknesses of global-reporting systems across 22 countries – including New Zealand – the study sets out a roadmap for change. Central to this are a series of critical questions and key principles that need to be addressed and challenges that need to be understood. The study comes ahead of a high-profile report by the International Integrated Reporting Committee (made up of leading industry bodies) which will propose future reporting standards, which have been given emphasis following the global credit crunch.
CIMA chief executive Charles Tilley says “It is critical that we have a system which is better positioned to spot the warning signs of another financial crisis.”
Mrs Embling says New Zealand companies have more reason than most to pay attention to emerging international trends. “Our prosperity is reliant upon our global reputation. If we don’t start showing our social and environmental impacts they’ll come a time when global customers will stop buying our goods and services.”
“The calls for integrated reporting offer an opportunity for New Zealand to actively work with and influence relevant overseas counterparts rather than lag behind. The question is, do we have an impetus for change, how will we get there and what will it look like?” adds Mrs Embling.
Barriers to change
Uniquely, the study has looked at the whole reporting system (people, organisations, rules and processes) rather than just the reporting model (specific requirements) or the design and content of the ‘ideal’ report. Issues identified include:
Roadmap for change
Looking to the future, the research sets out a roadmap for consensus building and change. Central to this are a series of critical questions that need to be addressed by those who oversee the reporting agenda, particularly its health, relevance and ability to explain business performance in a world constrained not just by financial capital, but also by human, social and physical capital. The questions include:
In order to design a corporate reporting system fit for the future it should: