April 9, 2018
by Laura Leka and Stathis Gould
Chief Financial Officers (CFOs) are natural leaders in integrated reporting and embracing this gives them the opportunity to shine as “changemakers” in their organizations, where they inspire new thinking and understanding of value creation. This is according to a new publication, ‘Creating Value – CFO Leadership in <IR>’, published by the International Integrated Reporting Council, in collaboration with IFAC.
Indeed, finance professionals are well positioned to take integrated reporting to the next level. As CFOs and finance leaders increasingly evolve into business partners and organizational integrators and navigators, integrated thinking and reporting provides a unique way and additional incentive for CFOs, and their finance teams, to focus on the information and decisions that matter to the organization and its success.
CFOs increasingly have an organization-wide perspective in their roles, as well as responsibilities that extend beyond financial management and reporting (e.g. risk management, business development and corporate strategy).
With direct access to the governing board and executive management team, along with credibility through their trusted reputation, skills and professionalism, CFOs are uniquely positioned to play a leading role in the transition to integrated reporting.
Four key actions CFOs and their finance teams can consider to enable integrated reporting in their organizations:
1 – Secure commitment to integrated reporting and thinking from business leaders:Top-down support from the governing board and executive management can be crucial to successfully implementing integrated reporting and thinking in an organization. CFOs can use their influential position to help change mindsets and support business leaders in recognizing that, through integrated reporting and thinking, the organization can better understand how it creates value over time, and the significant (internal and external) factors that affect its ability to do so. The board and management need to be actively engaged at the start and throughout the integrated reporting process in order to provide important and effective oversight at all stages, from identifying the material matters to report, to the preparation process and approving the final report.
2 – Create a structured and multi-disciplinary implementation approach that has wide support:Integrated reporting requires the involvement of various functions and departments across an organization, including finance, strategy, sustainability, investor relations, operations and human resources. Such a multi-disciplinary team requires strong direction and a champion to help coordinate efforts, connect the functions and break down silos. It is important that all departments or functions have a common understanding of how the organization creates value, as well as their respective contributions towards shared organizational objectives.
3 – Assess internal capacity for integrated thinking and integrated decision making, and put in place the processes and systems that provide data to show how value is being created or destroyed: Implementing integrated reporting requires an understanding of its fundamental concepts, such as the 6 capitals and the value creation process, and how these can be applied and embedded within the organization’s management processes. Incorporating a multi-capital perspective into decision making requires the capture and interpretation of reliable financial and operational data. CFOs can apply their experience with well-established processes, systems and controls over financial data to the development of wider information collection systems for non-financial data. In doing so, the CFO and finance function can enhance confidence in less mature non-financial information. This is explored further in the recent article: Confidence in Non-Financial Information Next Frontier.
4 – Prepare the finance function to facilitate integrated thinking and reporting:When the finance function embraces integrated reporting and adapts its activities to support implementation, it sends a strong message to the rest of the organization. Additional guidance is available: Creating Value with Integrated Thinking: The Role of the Professional Accountant, which includes five key areas that the finance function can actively support; connectivity; external value focus; integrated planning; effective governance and oversight; and integrated communications.
CFOs who embrace integrated reporting and drive its implementation have immense opportunity to impact their organizations, improve understanding of its drivers of value through a multi-capital lens and embed this into processes across the business. The result is more informed decision making, better managed risks and opportunities and improved information to understand performance.
Becoming the “changemaker” also helps a CFO enhance his or her role and reputation and increase his or her profile, influence and status as the key value enabler in the organization.