JSE-listed companies to produce integrated reports

With the global financial meltdown, corporate scandals and widespread corruption uppermost in investors’ minds, the need for transparent, accountable business is more urgent than ever.

Mervyn King, the chairperson of the King Committee on Corporate Governance, has been campaigning for good governance since the first King Report (King I) was published in 1994. Now King has launched guidelines for integrated reporting, which will be applied by JSE-listed companies from March onwards.

A company’s integrated report will replace the traditional annual report made available to stakeholders and investors, offering not just financials but also vital non-financial information about a company’s performance, value, remuneration structures and any potential risks the company could face.
Environmental risk factors also come into this (think BP’s oil spill and the subsequent loss of half its market value).

“Stakeholders want to know, not just about financial performance, but about the kind of impact a company will have on society and the environment. As the saying goes, if you open your kimono, you must make sure you have had a good bath,” said King.

JSE-listed companies are taking the lead here—complying with King III is a listing requirement for companies already. King’s guidelines, which are in draft form and open for comment for the next three months, provide the framework for integrated reporting. These “aspiration principles”, as the JSE’s CEO, Russell Loubser has put it, will push South Africa to the forefront of global best practice.

The timing could hardly be better. Last year, South Africa attracted the biggest share of foreign investments via portfolio flows after Brazil. We’re a new member of the Brics countries and we have an upgraded BBB+ Fitch rating. International investors are looking at emerging markets more closely and we can expect a lot more interest in the year ahead, since South Africa is also viewed a gateway to sub-Saharan Africa.

What an integrated report will tell you
Some of the more interesting information will address how executives are remunerated (and how future remuneration will work), how wealth is shared and distributed, what factors have influenced change in profits, and what could possibly influence future cash flows. Future objectives will also be addressed.

If a company fails to produce an integrated report, it will have to explain to the regulator (the JSE) why it has not done so.

“In this way, stakeholders will have a lot more information upon which to base investment decisions and if companies misinform, their stakeholders will not support them,” said King.

As much as companies may rail against producing more comprehensive documentation that needs to comply with stricter regulations and more pointed guidelines, the bottom line is this: Investors want to be able to trust a company as much as consumers need to trust brands. With shareholder activism on the rise, companies can’t afford to ignore socially responsible investing.

Leon Campher, CEO of the Association of Savings and Investment South Africa (Asisa), believes integrated reporting will help investors make the right decisions. The approach “will make it easier to compare different companies and to make a meaningful assessment of a company’s efforts in ensuring sustainable growth”, he said.

It will be quite a journey for listed companies—but the investor has every reason to be pleased.

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