King III Integrated Report: why it’s crucial to plan ahead
The nature of corporate reporting has evolved tremendously over the past few years and now even more so since the inception of King III in March 2010, which stipulates that listed companies should submit an Integrated Report. Many have subsequently dubbed Integrated Reporting as a complex process. But the rationale behind Integrated Reporting was not to complicate reporting on business operations. It was rather created to stimulate integrated corporate strategies that are driven towards truly sustainable businesses. Companies that fully understand these King III principles and incorporate it in their core business strategies, will have no trouble at all with providing an Integrated Report on their business activities. And this is why it is so important to plan ahead. But let us look at what Integrated Reporting really means...
The meaning of Integrated Reporting
King III is the abbreviated name for the King Report on Corporate Governance for South Africa published in 2009, which officially came into effect on the 1st of March 2010. King III specifies that companies should issue an annual Integrated Report that provides a reliable, comprehensive and holistic overview of the company, from both a financial and a non-financial perspective. A key aspect of Integrated Reporting is that companies should be able to outline the impact of their businesses on all three the spheres within which it operates: economic; social and environmental. These three elements are known as the Triple Bottom Line.
Essentially, King III recognises that companies cannot separate their business objectives and drive for profitability from sustainability. Integrated Reporting should therefore provide a more informed assessment of a company, based on both its economic and social value, and not only its book value. “Sustainability is the primary moral and economic imperative for the 21st century,” as said by Mervyn King.
The key components of a King III Integrated Report
The following summary however, highlights some of the key elements of business as it is addressed in the King III Integrated Report:
- Effective Ethical Leadership and Corporate Citizenship: A board should develop and implement the necessary policies and procedures to ensure that a company’s operations positively impact on the triple bottom line and that the company thus qualifies to be regarded as a good Corporate Citizen;
- Governance of Risk: King III focuses on the definition of roles and responsibilities for an all inclusive risk management approach which is firmly embedded in all aspects of a company’s operations;
- The Governance of Information Technology: King III recognises the increasing importance of technology in business and notes that the adequate governance and management of IT resources is imperative for the success of any business;
- Compliance with Laws; Codes, Rules and Standards: King III takes corporate compliance to a whole new level by strongly promoting compliance, not only with statutory laws and minimum regulations, but also with other non-binding rules; codes and standards that will encourage good governance;
- Governing Stakeholder Relationships: A new concept, called Alternative Dispute Resolution (ADR) is introduced in King III. King III further acknowledges the importance of Stakeholder engagement and ADR such as effective resolution of disputes; taking all parties into account and preservation of business relationships as important fundamentals for good corporate governance.
The most important difference between King II and King III
The most important difference between King II and King III can simply be seen as follows: King II focused mostly on “reporting,” whilst King III emphasises the importance of actually “doing.” “Doing” rather than simply “reporting” is a concept which is widely practised globally too, confirms Reana Rossouw from Next Generation Consultants, a thought leader in the CSI and Sustainability
“Internationally it seems that the sustainable development movement within corporations and enterprises is maturing. There is less talk about what sustainability are, less PR-based rhetoric, and more commitment to real action amongst the leading companies. Clearly, the concept of ‘responsible competitiveness and leadership’ seems to be taking root; that is; the notion that organisations can build innovation, market share and brand, based on their response to economical, environmental and social issues and risks. A number of large multinational corporations have begun to examine and develop new business models aimed at integrating the concepts of sustainable development and management into their core business objectives, risk management and operational strategies. The rationale for doing this is predominately based on the belief that aligning corporate objectives with stakeholder’s needs and expectations is likely to generate sustainable growth in shareholder value over the long-term. In our experience, the ability to craft and implement a sustainable business strategy which is able to deliver tangible benefits to increasingly discerning and informed stakeholders and shareholders, is a significant challenge for today’s CEO's.”
How to successfully compile a King III Integrated Report
The King III Report can be freely downloaded from the Internet. However, compiling an Integrated Report can be a daunting task for companies that are not yet familiar with the implications of the new King III or that does not have the expertise on board to interpret it correctly. “But, the best way to successfully compile a King III Integrated Report remains to start it off correctly- by first integrating the principles of King III into the core business strategy in a practical manner,” confirms Reana Rossouw. “Once it forms part of the everyday business activities, it will be very easy to report on it.”
When it comes to the actual reporting process – most companies in South Africa follow the GRI (Global Reporting Initiative) Guidelines. These guidelines not only provide the context for ‘what to report’, but also ‘how to report’ and additionally, provide guidelines for reporting across the triple bottomline. It is important to note that an Integrated Report does not mean one single report – it simply means integrating both financial and non-financial information to provide a realistic, future orientated picture of an organisation so that its stakeholders and shareholders can make more informed decisions as far as the company is concerned.
This integrated report not only provides information about how the company plans to manage risks and uncertainties, but also how it would manage challenges and opportunities in the future in order to be more sustainable. It is not like historical annual financial reports who traditionally only provided information about the previous years results, or what the company chose to report on, but it supplements traditional annual reports with forward looking information and more specifically, information on how a company plans to be sustainable in the future measured against specific targets it has set for itself.
Towards the future:
Even though an Integrated Report is called for – and companies will have to comply from the 2010/2011 financial year, it is important to recognise that as yet, in South Africa we do not have a formal framework or guideline to report against. A working committee has been established in South Africa to address the issue. However, at this point in time the first challenge for companies is not simply to produce an Integrated Report, but to provide a balanced report of combined financial and non financial information.
Next Generation Consultants will soon be hosting a workshop, titled “BEST PRACTICE IN SUSTAINABILITY MANAGEMENT AND INTEGRATED REPORTING” Set to take place in October, both in Johannesburg and in Cape town, this exclusive workshop will not only enable Sustainability Managers to approach sustainability more professionally, but it will also assist companies to develop and integrate sustainability into their business strategies. It will further enable them to report on their progress and journey towards sustainability in fully integrated sustainability reports.
Another must-attend workshop for companies who would like to leverage CSI to strengthen their strategic business and brand objectives with measurable results- whilst achieving real transformation, is Next Generation Consultant’s upcoming “TOWARDS BEST PRACTICE IN CSI” that is scheduled to run in both Cape Town and Johannesburg during September 2010. For more information, visit http://www.nextgeneration.co.za/; contact Reana Rossouw on 011- 658 8616 or e-mail rrossouw@nextgeneration.co.za.
