Royal Patron HRH Prince Michael of Kent GCVO

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Lex House 17 Connaught Place London W2 2ES United Kingdom Tel 44 207 100 1808 Fax 44 207 823 2302 E info lsbf org uk W www lsbf org uk

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Lex House 17 Connaught Place London W2 2ES United Kingdom. Tel 44 207 100 1808 Fax 44 207 823 2302,E info lsbf org uk W www lsbf org uk. Hutton in Them and Us suggests that in Britain in the 1980 s a third of SME s died within three. years of entering their market and that by the 2000 s the figure had jumped to a half Hutton. 2010 254 In the same passage he suggests that the average age of S P 500 companies was. forty five years in 1975 by 2007 it had reduced to eleven years The same is likely to be the case. for UK and other jurisdictions quoted corporate stocks And corporations are becoming. increasingly myopic as evidenced by for example Andrew Haldane s speech The Short Long. given in May 2011 in Brussels to the 29th Societe Universitaire europ enne de Recherches. Financieres Colloquium A focus on how corporations describe themselves both from year to. year but also over the short medium and long term is therefore to be welcomed. Q1 a Do you believe that action is needed to help improve how organizations represent their. value creation process Why why not, Yes There is growing empirical evidence that even those in the vanguard of corporate reporting. are unclear about fundamental matters at the heart of their reporting For example the. Accounting Standards Board surveyed a sample of FTSE 350 and FTSE Small Cap Index. corporate reports in 2008 09 and among other things examined the way the sample described. their business model They then scored disclosure according to simple criteria out of 5 52 of. the sample scored only 2 out of 5 with 32 scoring 3 out of 5 Of the 32 they noted. We understood what they sell where they sell it and who they sell it to but this generally. fell short of describing the business model that is a comprehensive explanation of how. all of the different components of the business work together to generate cash. And evidence to the UK Treasury Select Committee on UK and other banks stress testing. models showed inherent optimism bias in their contemplation of the degree of economic stress. they were prepared to envisage as well as the refusal to accept that one off catastrophic hazards. may indeed materialise, Finally the most far sighted corporate reporters are coming to grips with the prospect of a carbon. constrained populated century where supply chains will be under severe pressure as global. economic rebalancing moves relentlessly forward In these circumstances understanding how a. corporation creates value over the short medium and long term will become a valuable tool in. sustainable development in a fiscally constrained landscape. b Do you agree that this action should be international in scope Why why not. Yes We believe the emphasis on an international scope is important International is not the. same as global We consider that there are a handful of truly global corporations in the world. where global signifies that the place of residence of a corporation is incidental to its business. model One lesson learned from the continuing banking crisis is that organisations keen to. describe themselves as global in good economic times failed in specific jurisdictions It is better. Royal Patron HRH Prince Michael of Kent GCVO, London School of Business Finance Registered in England Reg 04977611. Lex House 17 Connaught Place London W2 2ES United Kingdom. Tel 44 207 100 1808 Fax 44 207 823 2302,E info lsbf org uk W www lsbf org uk.
to view the majority of corporations describing themselves as global rather as institutions. working more or less effectively internationally, One aspect of the international scope of IIRC s work is the pragmatic recognition of certain facts. of corporate life For example English is for the foreseeable future the language of business. For example London has been a central hub for companies looking to establish an international. listing with the highest standards of corporate governance For example many of the large. mining and extractive industry corporations have grown up in regulatory frameworks and. institutions very different to those present in London or New York. And being international in scope also places a burden on the IIRC to truly engage in reporting. practices outside the well trodden Anglo Saxon axis. Sustainability disclosure in the Nordic countries, German concerns over commercial confidentiality in financial reporting. Ground breaking corporate governance developments in South Africa. Innovation in Japan s corporate sector, Tapping into the wealth of knowledge skills and experience of institutions such as the. World Bank, These instances and many more like them will all need intensive study and research to draw out. best integrated reporting practise Here at LSBF we would be keen to help with those research. programmes of work, Q 2 Do you agree with the above definition of Integrated Reporting Why why not.
Yes However we would make two points here, Firstly the IIRC project needs to be clearly differentiated from other directions and innovations in. corporate reporting such as for example the balanced score card BSC so beloved of a certain. generation of business schools The BSC was always based on a reaction to a caricature of what. accountants actually do Whatever is said of accountants and indeed what many accountants say. of themselves financial reporting does make presumptions about the future in a range of ways. and through various calculative techniques from discount rates through to useful economic lives. and taking in estimates and provisions along the way The leadership of IIRC knows and. understands this very well, Secondly we would encourage the IIRC to be breath taking and radical in its approach to the. integration of reporting If as we believe integrated reporting forms the strategic narrative of the. corporation then might there be a case for appointing a writer in residence who would develop. a novel or perhaps short stories of the organisation Or might it be innovative to bring a social. anthropologist into the board room and the workplace to produce an ethnography of how we do. business around here We would support the IIRC in such initiatives any less will be doomed. Royal Patron HRH Prince Michael of Kent GCVO, London School of Business Finance Registered in England Reg 04977611. Lex House 17 Connaught Place London W2 2ES United Kingdom. Tel 44 207 100 1808 Fax 44 207 823 2302,E info lsbf org uk W www lsbf org uk. to minor improvements of a practice currently mired in silos of specialisation and boiler plating. of disclosure, Q 3 Do you support the development of an International Integrated Reporting Framework Why.
Yes We wholeheartedly support the development of an International Integrated Reporting. Framework Drawing on the author of this response s experience in the context of developing a. Climate Change Reporting Framework under the auspices of the Climate Disclosure Standards. Board it will be vital to be inclusive and active in the engagement of relevant stakeholders The. CCRF has been consciously developed in the style of the International Accounting Standards. Board relying wherever possible and applicable on the IASB conceptual framework and. vocabulary At the same time the multidisciplinary nature of such a project means ensuring. international inclusion as well as specialists in measurement and uncertainty and the corporate. reporting community Unfortunately and for several reasons persistent criticisms are levelled at. the IASB s own consultation processes and one only has to look at the controversy generated in. the implementation of say IAS 19 among corporate reporters to realise that there can never be. too much consultation in these situations, Above all the IIRC project must not be seen as another plaything of the big 4 accounting firms or. the professional accounting bodies Its ambition should be far beyond those narrow confines. Q4 a Do you agree that the initial focus of Integrated Reporting should be on reporting by larger. companies and on the needs of their investors Why why not. We agree that the initial focus of IR should be on reporting by larger companies and on the needs. of their investors because these institutions have a duty to the public interest In particular. corporations enjoy the social contract of limitation of liability a truly generous arrangement. However it will be important for the IIRC to speedily settle on a robust working definition of. what a larger company means This will need to take account of differing listing requirements. in different jurisdictions It will need to be mindful too of the fact that there are large private. corporations, It goes without saying that the practice of reporting in large complex organisations will benefit. from process mapping the who what why when and how of this specialised mode of. communication, Investors too is a very broad category It may cover everyone from the micro second trader to. the long term pension fund manager We would recommend that the IIRC consider carefully the. segmentation and intermediarisation of the industry and target their focus accordingly. On both mapping and segmentation LSBF would be pleased to progress research initiatives with. Royal Patron HRH Prince Michael of Kent GCVO, London School of Business Finance Registered in England Reg 04977611. Lex House 17 Connaught Place London W2 2ES United Kingdom. Tel 44 207 100 1808 Fax 44 207 823 2302,E info lsbf org uk W www lsbf org uk.
b Do you agree that the concepts underlying Integrated Reporting will be equally applicable to. small and medium enterprises the public sector and not for profit organizations. Only in the broadest of terms and only when it is clear that benefits outweigh costs for these. categories The assumption of trickle down from the top table of corporate reporting is. dangerous and na ve IIRC will be well aware of the regulatory principle of thinking small first. and the limited success that this driver has had around the world Small and medium sized. enterprises are often the sources of innovation and agility particularly in the area of. communication and building brand and reputation and presence It is perfectly plausible that. concepts underlying IR may be tested by these other sectors and found wanting. Q 5 Are a the organization s business model and b its ability to create and sustain value in the. short medium and long term appropriate as central themes for the future direction of. reporting Why why not, We are unsure as to why a and b are separate categories Surely the ability to create and. sustain value over the short medium and long term is a subset of an organisation s business. model In our view the business model is the central theme for the future direction of reporting. It is central because it is all encompassing and for the most part poorly understood see our. comments above on the work of the FRC, It will be an achievement to get settled definitions of short medium and long term. Accountants and time are uneasy bed fellows and too much that goes for corporate reporting of. the future is based on na ve notions of discounting and risk free discount rates The on going. global economic rebalancing the drying up of oceans of liquidity in the banking system and the. gathering storm of disruptive climate change mean that striving to reach that settled definition is a. noble aspiration Again LSBF would be pleased to offer its resources in developing lines of. research that will help achieve that goal, Q6 Do you find the concept of multiple capitals helpful in explaining how an organization creates. and sustains value Why why not, The challenge with multiple capitals is its association with economic thinking and the danger of. falling back into framing corporate reporting in terms of an economic conceptual framework As. the IIRC paper rightly shows the most striking aspect of corporate balance sheets over the last. few decades has been the growth of intangible assets In economic theory this is described as. total factor productivity but is in fact a residual category i e how to explain economic growth. when all other factors have been taken into account As long as multiple capitals is used in this. weaker residual sense then it is of limited help in explaining how organisations create and. sustain value The central thrust of the IIRC project must be to encourage and respect. multidisciplinary approaches to corporate reporting. Royal Patron HRH Prince Michael of Kent GCVO, London School of Business Finance Registered in England Reg 04977611.
Lex House 17 Connaught Place London W2 2ES United Kingdom. Tel 44 207 100 1808 Fax 44 207 823 2302,E info lsbf org uk W www lsbf org uk. Q7 Do the Guiding Principles identified in the Discussion Paper provide a sound foundation for. preparing an Integrated Report are they collectively appropriate is each individually appropriate. and are there other Guiding Principles that should be added Why why not. Overall the guiding principles are well stated The challenge will be in addressing the issues. around commercial confidentiality For example how willing are corporations to freely disclose. significant new opportunities risks and dependencies that flow from the organisation s market. position strategies and business model This will be where effective stakeholder engagement. with investors and reporters will be of the essence It will be the pull of information flow from. investors rather than the push of information flow from corporate reporters that will ultimately. improve and lead to integrated reporting, The reference to future orientation and to sensitivity analysis are points that are well made If. the IIRC are not already aware the work of the Long Finance forum is likely to be of relevance. and value In particularly working with ACCA they have developed a worked example of. confidence accounting which makes explicit the benefit of moving to using distributions rather. than discrete values in auditing and accounting particularly in the case of the banking sector We. would be happy to forward the worked example if required. Q8 Do the Content Elements identified in the Discussion Paper provide a sound foundation for. preparing an Integrated Report are they collectively appropriate is each individually appropriate. and are there other Content Elements that should be added Why why not. Yes they do provide a sound foundation In terms of governance and remuneration it will be. important for the IIRC to keep an open mind on the diversity of regulatory regimes around the. world and avoid falling back on the UK Combined Code with its imperfections and unintended. consequences In this context the phrase tone at the top is helpful. In terms of other Content Elements we consider that there should be a separate item covering. supply chain identification and management particularly in the context of a carbon constrained. And particularly in the light of an on going worldwide banking crisis we would ask whether an. additional Content Element on organisational risk appetite may be required. Q9 From your perspective as a reporting organization. a Do you agree with the main benefits as presented in the Discussion Paper Why why not. Benefits will need robust definition particularly for corporate reporters who will have a fairly. well defined sense of the cost of their finance function and statutory accounting but a vaguer. sense of the strands that come together in the production of the strategic narrative that is at the. heart of corporate reporting,Royal Patron HRH Prince Michael of Kent GCVO. London School of Business Finance Registered in England Reg 04977611. Lex House 17 Connaught Place London W2 2ES United Kingdom. Tel 44 207 100 1808 Fax 44 207 823 2302,E info lsbf org uk W www lsbf org uk. b Do you agree with the main challenges as presented in the Discussion Paper Why why. It is true that integrated reporting will move at different speeds in different jurisdictions however. it is an undeniable fact alluded to above that many regulatory initiatives have historically tended. to flow from London and the London Stock Exchange and that this is unlikely to change for the. foreseeable future, Safe harbours are an excellent idea but the allocation of liabilities up and down the reporting.
chain is a topic long overdue for radical overhaul A clear need is flagged with fair and. proportionate limitation of liability for the external auditor but also the evolving rights and. responsibilities of directors need to be addressed particularly in the context of key man. Commercial confidentiality will be a major hurdle to clear if integrated reporting is to be at all. meaningful,Q9 From your perspective as an investor. a Do you agree with the main benefits as presented in the Discussion Paper Why why not. The events of the last three years have forcibly brought home the extent to which individual. households are now often unwillingly investors In some jurisdictions we own substantial parts. of the banking system The drive towards defined contribution post retirement provision forces. us to confront the highly mediated investment sector Integrated reporting must be viewed as a. beneficial innovation into this changing landscape in terms of engaging with short termism in the. investor value chain, b Do you agree with the main challenges as presented in the Discussion Paper Why why. We agree that short termism is a major challenge with increasing evidence of dark pools of. liquidity as well as micro second trading on the increase Additionally the principal agent. problem seems more not less exacerbated in recent years And the integrated reporting initiative. comes just at the same time as regulatory attempts in several jurisdictions to make the fee. structure of investing more transparent There will be many sensitivities requiring strong. leadership and clarity of purpose from the IIRC secretariat. c Do you agree that Integrated Reporting will drive the disclosure of information that is. useful for integrated analysis Why why not, Yes we agree Sociological analyses show that investment analysts are respected not particularly. for their share advice buy sell hold and are seen as rather lemming like in such advice. However they are more valued for the on going narratives they develop about corporations. Royal Patron HRH Prince Michael of Kent GCVO, London School of Business Finance Registered in England Reg 04977611. Lex House 17 Connaught Place London W2 2ES United Kingdom. Tel 44 207 100 1808 Fax 44 207 823 2302,E info lsbf org uk W www lsbf org uk.
which provide a source of comfort to the wider investor community Integrated reporting can. only lead to better more resilient and sustainable corporate narrative practice. Q9 From your perspective as a policy maker regulator or standard setter. a Do you agree with the main benefits as presented in the Discussion Paper Why why not. We believe an added benefit of the IIR project will be the drive towards minimisation of. unintended consequences arising as a result of poor regulatory design The more complete the. jigsaw the less likely to find clusters of pieces in the wrong part of the picture. b Do you agree with the main challenges as presented in the Discussion Paper Why why. As noted above one of the key concerns will be around commercial confidentiality of corporate. reporters This may only be dealt with by building up a strong relationship of trust between. stakeholders and the IIRC project,Q9 From your perspective as a key stakeholder. a Do you agree with the main benefits as presented in the Discussion Paper Why why not. b Do you agree with the main challenges as presented in the Discussion Paper Why why not. Q10 a Do you agree that the actions listed in the Discussion Paper should be the next steps. undertaken by the IIRC Why why not Are there other significant actions that should be. b What priority should be afforded to each action Why. Q11 Do you have any other comments that you would like the IIRC to consider. 1 It will be vital to adopt a project focused approach to the IIRC work plan since funding. will be driven by results, 2 It will be vital to forge strong links with the technology sector to exploit much more. effectively the leaps forward in that sector The idea of safe harbours and ideas labs. 3 IIRC will need to avoid capture by vested interests as well as not conforming to. stereotype e g this is just another initiative of the accounting big 4 It has the. potential to be much more, 4 However expectations will need to be carefully managed Much of the IIRC project will. be around exploring and dispelling uncertainty As the world slips dangerously close to. economic recession stakeholders in the business of strategic narration need to understand. that no silver bullet will deliver integrated reporting. 5 LSBF reaffirms its commitment to this important initiative and is keen to help where this. is mutually of benefit,Royal Patron HRH Prince Michael of Kent GCVO. London School of Business Finance Registered in England Reg 04977611. Lex House 17 Connaught Place London W2 2ES United Kingdom. Tel 44 207 100 1808 Fax 44 207 823 2302,E info lsbf org uk W www lsbf org uk.
Best regards,Dr Steve Priddy Head of Research,Royal Patron HRH Prince Michael of Kent GCVO. London School of Business Finance Registered in England Reg 04977611.

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