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King IV™, Integrated Thinking and Integrated Reporting

Beginning the Integrated Reporting journey

One of the habits Steven Covey identifies in his award winning book, The 7 Habits of Highly Effective People®, is to “begin with the end in mind”. This is true too in the case of Integrated Reporting – it is good practice to be mindful of the IIRC’s intentions with respect to Integrated Reporting.

The IIRC intends that reporting bodies use Integrated Reporting as a means to bring a “greater cohesion and efficiency to the reporting process”.

The rewards for adopting Integrated Reporting, the IIRC explains, are essentially those benefits associated with unifying and optimizing similar and same processes. One can understand this when considering that information assimilation and standardization processes are the same and therefore re-usable across all types of information.

Achieving organisational buy-in is the difficulty.Integrated Thinking underpins Integrated Reporting

Aligning with King IV™

The draft King IV™ Report, in an evolutionary step from King III, moves from using the term “Integrated Report” to the principle of organisations issuing an annual report which “presents material information in an integrated manner”. The draft Report refers to its reliance on the “philosophy and terminology” as developed by the IIRC in this regard. In essence, the draft Report relies on the International <IR> Framework as a recommended practice for Integrated Reporting.

Integrated Thinking underpins Integrated Reporting

The consequence of adopting Integrated Reporting is that organisations will necessarily need to “think” in an integrated manner and generate reporting (information) which can be integrated.

The draft King IV™ Report notes that commitment to Integrated Thinking starts with adoption at the top and then embedment “through the integration of strategy, risk and opportunity, sustainable development, performance and outcomes”.  To support the ability for the governing body to have such an integrated view, the Report requires that they have sight of the “value-creation process”.

The governing body is required to have sight of the organisation’s “inputs”, business processes, “outputs” and “outcomes” such that they are able to appropriately govern and report on the organisation’s performance and value creation. This requires that management provide such information to the governing body in a manner which is consistently and cohesively integrated across the respective operational units and organisational disciplines (silos).

Indeed, integrated thinking is required throughout the organisation.

This requires a cultural shift and its impact should not be taken lightly. As with all organisational cultural change initiatives, the shift is extensive, it takes time and it requires careful consideration. Some will get it, some won’t – most will support it because it “makes sense”, but some will fight it to the bitter end.

 Compliance versus Governance

One doesn’t need to have organisational thinking fully integrated before issuing a first Integrated Report (“annual report which presents material information in an integrated manner”); rather the expectation is that the organisation continually improves report quality and alignment with the recommended practices as detailed in the International <IR> Framework and draft King IV™ Report.

This is unlike a compliance approach. Compliance uses a binary measure – “complies” or “does not comply”. Governance is measured in levels of maturity, most commonly those levels of maturity defined in ISO 15504.

Setting Objectives, What Winning Looks Like

The journey has started

The governing body has formally committed to reporting annually in an integrated manner.

The governing body and management are comfortable

Leadership understands that the organisation is immature in its ability to “think” in an integrated manner but is committed to improving this position.

A target is in sight

A level of maturity which best suits the organisation’s risk appetite, financial resources and skill levels has been agreed, understanding that this agreed level is not necessarily the highest level of maturity.

An improvement process is entrenched

  • Annual improvement plans are adopted and progress measures have been agreed;
  • Effective interventions are taking place and regular progress reports are reviewed;
  • An annual maturity assessment takes place; and
  • On the basis of the assessment, new plans are drafted and maturity targets are reviewed.

Reports are regularly reviewed

The information used for the reports is accurate, interpretations applied to the information are consistent, reports across operational units and functional disciplines can be compared.

The value-creation process is understood

Inputs and Outputs have been defined, information is being gathered, business processes are documented, Outcomes have been determined or identified.

The organisation is improving performance and generating value as a result of achieving increasing alignment towards the common purpose and agreed goals as defined by the governing body

Candor Governance helps organisations in this journey

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