Amid a complex range of corporate reporting initiatives, are we seeing the emergence of a catalyst for convergence?

A dysfunctional reporting landscape
Reporting frameworks, standards, rules, guidelines, codes, directives, protocols, regulations: all too numerous but all different in purpose, scope, authority and style.
Few could deny that the corporate reporting landscape is unnecessarily complex and confusing. It’s at the point of being an irrational hindrance to the increasing numbers of companies worldwide trying to communicate more usefully to markets how they create value, and to the growing ranks of investors seeking the broader range of information that they consider essential to assess how companies create value today and are likely to in the future.
Meanwhile, concerns are increasingly expressed by progressive thought leaders and policy setters about short-termism in capital markets and about whether the markets are conducive to effective capital allocation or sustainable wealth creation. Information reported to capital markets, together with the legal and regulatory requirements governing such information flows, are undoubtedly a factor that impedes market efficiency and balanced economic analysis. Corporate reporting is not as important as actual corporate performance, but it does (or should) enable capital markets and company stakeholders to make and compare informed assessments of performance and prospects, as well as evaluate the quality of stewardship and governance. We have global conventions and protocols for the World Wide Web that have evolved by international collaboration and consent after only two or three decades. Not so for corporate reporting, which has been evolving for considerably longer and has so far eluded global harmonization.
So where might one look for a means of bringing order and alignment to this scene? Who needs to be involved in the quest for global convergence and rationality in corporate reporting?
The active engagement of five broad constituencies seems essential in any dialogue convened for this purpose. None of these alone could achieve success, but collectively they bring to bear the requisite expertise, resources and legitimacy to bring about the worldwide alignment of fit-for-purpose corporate reporting practices. In no particular order, these constituencies are:Governments & regulators
One of these five constituencies is clearly that of government (in the sense of economic policy setters, both political and bureaucratic), capital market regulators (including stock exchanges) and legislators of corporate governance statutes and regulations. Globally this constituency comprises organizations such as the G20 group of leaders and their finance ministers, the International Organization of Securities Commissions (IOSCO), and the World Federation of Exchanges – and also the nine-nation Group of Friends of Paragraph 47 (first formed after Rio+20). Regionally and domestically it’s the likes of the European Union, the US Securities & Exchange Commission and the National Association of Insurance Commissioners (NAIC, a quasi regulatory body), the UK’s Department of Business, Innovation and Skills and Financial Reporting Council (FRC), the South Asian Securities Regulators’ Forum, or the Canadian Securities Administrators (e.g. the Ontario Securities Commission).
Standards setters & guidelines promulgators
A second constituency would be well-established and respected global and national organizations that develop and issue either authoritative (i.e. widely respected and in many jurisdictions mandatory) performance measurement, accounting and reporting standards or frameworks and guidelines on corporate reporting in general, or on specific aspects thereof. This constituency would include the International Accounting Standards Board (IASB), Financial Accounting Standards Board (FASB), Global Reporting Initiative (GRI) and International Organization for Standardization (ISO), and perhaps the Organization for Economic Cooperation and Development (OECD, which does not set policy, laws or mandatory standards but does provide influential guidelines such as those for Multi-national Enterprises); more recently, the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB, a US-focused initiative) have become important actors in this constituency, along with the Climate Disclosure Standards Board (CDSB) regarding climate change related disclosures.
Investor community and intermediaries
A third constituency would be the investor community,
especially those investment institutions that are long-term asset owners (often with fiduciary responsibilities), asset managers and financial analysts, and the many large insurance and banking institutions. In addition to major institutional investment houses with global reach and billions (collectively trillions) of dollars of investments, there are bodies that represent the collective and sometimes influential voice of selected segments of the investment community, such as the International Corporate Governance Network (ICGN), Investor Network on Climate Risk (INCR), Principles for Responsible Investment (PRI), International Centre for Pension Management (ICPM), and the United Nations Environment Programme Finance Initiative (UNEP FI). There are similar bodies at the national level in many countries. Credit rating agencies such as S&P or Moody’s are other voices to consider.
These are all organizations whose investment decisions or recommendations are influenced by, among other factors, the information reported by companies whether as mandatory or as voluntary disclosures. Unfortunately, the investor community and its major subsets have not, with a few exceptions (such as the INCR), been particularly effective in articulating clearly and loudly their information needs to standards setters and capital market regulators.
Business: companies as reporters
A fourth constituency is, of course, that of business itself, i.e. the companies whose reporting to capital markets is either shaped by the standards, guidelines, laws and regulations of the jurisdictions in which they are based, or by voluntary codes and guidelines that they voluntarily opt to implement. Many companies are themselves global in scale, reach and influence, but in addition there are organizations that speak for business interests either progressively to advance societally acceptable and responsible business practices or regressively to lobby against or otherwise impede progress towards such practices. For example, the World Business Council for Sustainable Development (WBCSD) has long been an important voice in promoting balance between the essential economic development and value creation agenda of businesses with that of progress towards sustainable development. The WBCSD has itself undertaken several useful programs around performance measurement and reporting practices. Disclosure initiatives by other international industry sector bodies have been similarly valuable. The IIRC’s Pilot Programme companies are other sources of business input and leadership on corporate reporting practices.Accounting profession
The fifth constituency that needs to be engaged in this space is the accounting profession itself, as represented by the International Federation of Accountants (IFAC) and the leading national accounting bodies that belong to it, and by the major global accounting firm networks (the “Big Six”). The Global Accounting Alliance and the Accounting for Sustainability (A4S) Accounting Bodies Network are additional voices for the accounting profession that can be looked to for thought leadership about corporate reporting practices, as well as, with IFAC, the role of independent assurance in enhancing credibility and trust in corporate reporting. Accounting profession expertise in measurement, accounting and reporting standards setting is indispensable to any future harmonization of corporate reporting practices and standards.
The search for convergence and harmonization
One now may ask how might it be possible to bring to a hypothetical round table the collective wisdom, expertise and influential thought leadership of these five broad constituencies in a dialogue process that over time will lead to the global harmonization of corporate reporting practices? Who might have the legitimacy and capability to convene and orchestrate such a process, harnessing these constituencies to collaborate in the global public interest over whatever period of time is needed to effect the necessary outcomes around the world? Until June 2014, it would have been difficult to identify any convening organization with the credentials or will to attempt such a task. But the June 17, 2014 announcement of the Corporate Reporting Dialogue (CRD) initiative by the IIRC and the stature of the organizations that have committed to participate in it may be evidence that key actors recognize the need to address and achieve global alignment in the corporate reporting landscape. The enunciated aims of the CRD and the opening declaration statement by its chair are close to what is called for in this brief article. Integrated Reporting and the CRD as put forward by the IIRC can be the catalyst for convergence and rationalization in corporate reporting that is so essential to harmonize this landscape. While the participants listed in the above CRD announcement are all standards setting and guidelines issuing bodies, it is hard to imagine their work being successful without appropriate engagement with the other four constituencies outlined above.
Market forces or regulation? A delicate dance!
A key issue is how far market forces alone (business and investors, together with standards setters and the
accounting profession) can succeed in bringing about the necessary worldwide harmonization and alignment of corporate reporting. Could these forces succeed in influencing market regulators and legislators, perhaps through the G20 leaders, to support and indeed mandate or endorse agreed upon corporate reporting reforms and harmonization proposals? Or might government policy setters, regulators etc. respond to some future market crash or heed civil society calls by mandating reforms of some kind as a matter of protecting the broader public interest? Realistically, market forces will have to lead the way, while constantly sowing the seeds for and informing action at the public policy (i.e. government, legislative and regulatory) level – country by country, region by region and eventually around the world.

Conclusion – Emergence of a New Catalyst
The IIRC’s Corporate Reporting Dialogue, together with its December 2013 Integrated Reporting (IR) Framework, has the potential to be the way forward; a catalystworthy of consideration and support by all concerned constituencies. Indeed, early global uptake of the IR Framework and recognition of it by important national regulatory authorities and other influential bodies and corporate leaders augur well for what is possible. The global economic (and ultimately human) stakes are too high to ignore this opportunity to harmonize and integrate corporate reporting worldwide. Isn’t it simply a matter of acting sensibly and responsibly in the common public interest?

Alan Willis is a Chartered Accountant and has been an independent researcher, writer and advisor on business and sustainability performance measurement and reporting for over twenty years. A founding member of the GRI’s original Steering Committee, he currently serves on the Working Group of the International Integrated Reporting Council and is a member of the Network for Sustainable Financial Markets.