x Abu Dhabi, UAEThursday 18 January 2018

A better way for corporate transparency and accountability

Integrated Reporting is a global trend that is likely to reach our shores in the near future. It provides a clearer and more complete picture of a company’s affairs.

Companies are moving to close the gap between the information that investors want and what they are now being offered. Jeffrey E Biteng / The National
Companies are moving to close the gap between the information that investors want and what they are now being offered. Jeffrey E Biteng / The National

The start of a new year is a time for reflection of past challenges and achievements, but more importantly also a time to set new goals and objectives, both personally as well as within the organisations we are part of. In this vein, many companies put together an annual review and announce their broad goals for the future. Adopting best business practice and raising the bar in terms of corporate governance is becoming an increasingly popular aspect of this activity.

Globalisation has resulted in greater interdependence between economies, with advances in technology changing policy and intensified scrutiny of corporate transparency and accountability. As a result, and to remain successful, organisations in the Arabian Gulf region are being forced to adapt and develop innovative business models that recognise the need to do more with less. It therefore follows that much more suitable information is needed to properly assess organisational performance and future resilience.

The gap between investors’ needs for a more complete picture and the information currently being reported is not sustainable. To provide for the growing demand for information, businesses have had to increase the volume and quality of information they provide. As a direct result, reporting has evolved; however the resulting reports have in many cases become convoluted and the critical relationships between strategy, governance and financial performance lost. In addition, international reporting requirements differ across jurisdictions, which has also increased the compliance burden for businesses that report in more than one jurisdiction, making it more difficult to compare the performance of organisations across jurisdictions. Therefore it is not enough to keep adding more volume of information to organisational reports. Instead, reports should be streamlined.

Several Gulf companies already produce forward-looking reports based on integrated thinking primarily for their shareholders and potential investors, and there are indications that an increasing number of companies within the GCC are beginning to embrace several aspects of Integrated Reporting. Case studies collated by the Pearl Initiative examining the move towards Integrated Reporting illustrate progress made by these companies towards more analysis of environmental, social and governance factors and impacts into their reporting. For example, case studies on National Bank of Abu Dhabi and Aramex illustrate the learning from their journeys towards making their reporting more strategic, material, quantitative and transparent.

This enhanced form of reporting is a global trend that is likely to reach our shores in the near future.

The release of the International Integrated Reporting Framework on December 9 was a key milestone in the evolution of corporate reporting. Following a three-month global consultation led by the International Integrated Reporting Council (IIRC) that resulted in more than 350 responses from across the world, a framework was established to provide a universal template for organisations to follow when reporting. This model eradicates internal silos and improves the quality of information available to facilitate more efficient allocation of capital, thanks to its main focus on value creation.

A structured framework, such as that offered by Integrated Reporting, demonstrates a business’s ability to create true stakeholder value. Integrated Reporting brings together strategy, governance and performance metrics that reflect the commercial, social and environmental context in which it operates.

Whilst it may be impractical to suggest that all companies and organisations in the Gulf implement the framework, those companies which are already mandated to produce an annual report, such as those listed on our stock exchanges, could certainly lead the way. Indeed, the new draft of the Companies Law requires public entities to provide more detail about their operations, therefore providing the perfect opportunity to re-examine how reports are compiled and the information that is included.

To ensure that our region remains competitive, corporate reporting by our companies needs to evolve to place us on an equal footing with economies across the globe. In South Africa, Integrated Reporting is already becoming a reality as listed companies are now legally required to adopt Integrated Reporting on an “apply or explain” basis. A study by KPMG into South Africa’s experience found that many of the most successful implementations have been driven from the board and top management and perhaps this is where we in the UAE and the wider Gulf region should begin. Successful reporting is not just about outlining progress, but about co-ordinating different disciplines within the business and focusing on the organisation’s core strategy. Therefore, by leading from the top, our region’s businesses can drive the elements of Integrated Reporting gradually and systematically, before it becomes a scramble to meet regulatory requirements.

The Pearl Initiative, a not-for-profit organisation focused on improving governance and business practices across the Gulf region, was founded out of to a core belief that businesses are crucial to the well-being of the societies in which they operate. Widespread use of Integrated Reporting would help our region’s companies tell their story, and places the responsibility for communicating the business’s story on the reporter rather than a set of reporting rules providing clarity and consistency no matter where the organisation is located.

Ultimately, it is this mindset of corporate transparency and accountability that will help us build and maintain sustainable economies that we will be proud to hand on to future generations.

Badr Jafar is the chief executive of the UAE’s Crescent Group, and the founder of the Pearl Initiative