The UK’s revised Corporate Governance Code issued today provides the ideal opportunity for British companies to adopt integrated reporting, with the new Code strengthening the alignment with the International Integrated Reporting Council (IIRC).
A principle of the new Code issued by the Financial Reporting Council (FRC) is that the board should have the necessary ‘resources’ in place to meet its objectives. The Code also states explicitly that directors and companies ‘need to build and maintain successful relationships with a wide range of stakeholders’ in language that mirrors that of the International <IR> Framework.
The Framework states that ‘an integrated report aims to provide insight about the resources and relationships used and affected by an organization’ – called ‘the capitals’ in integrated reporting.
The new Code also calls on directors to describe in their annual report how the interests of a wide stakeholder community as set out in section 172 of the Companies Act have been considered in board discussions and decision-making.
‘Stakeholder relationships’ is one of the guiding principles of integrated reporting and the <IR> Framework states that, ‘an integrated report should provide insight into the nature and quality of the organization’s relationships with its key stakeholders, including how and to what extent the organization understands, takes into account and responds to their legitimate needs and interests’.
The IIRC encourages directors of all UK listed companies to use the International Integrated Reporting Framework as a resource to apply this aspect of the new Code.
The IIRC highlights two further areas that enhance the alignment between UK Corporate Governance Code principles and integrated reporting:
- Provision 1 of the Code underlines the board’s responsibility to ‘assess the basis on which the company generates and preserves value over the long-term’ and describe ‘the sustainability of the company’s business model and how its governance contributes to the delivery of its strategy’.
- The Code states that corporate governance reporting should ‘relate coherently to other parts of the annual report – particularly the Strategic Report and other complementary information – so that shareholders can effectively assess the quality of the company’s corporate governance activities’.
The International <IR> Framework, with its focus on connectivity, multi-capitalism and the drivers of value creation, is the ideal tool for businesses to use to respond to this new corporate governance code. It is already being used by many major UK businesses including Marks and Spencer, United Utilities and BT Group.
Businesses today are expected to explain clearly and concisely how they use their multiple resources and relationships to create value for the long-term. Critical to a company’s long-term success is its relationship with key stakeholders, so improved insight into how the board is taking into account their interests and expectations is welcome.Richard Howitt, Chief Executive Officer of the IIRC
The Code brings UK corporate governance practice into greater alignment with the international principles of integrated reporting. In doing so it seeks to reorient business and investor behaviour towards long-term value creation which will bring the benefits of stronger investor stewardship, enhanced public trust and more productive investment.
It is the ideal opportunity for British companies to begin to adopt integrated reporting, if they have not already done so.
Source: Integrated Reporting