The Integrated Reporting Movement. Eccles Robert G.

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СКАЧАТЬ in Southern Africa (IoDSA)25 resolved to reinterpret business practices to prepare the South African economy for exposure to international markets by establishing the King Committee in 1992. Named after Mervyn King, a former corporate lawyer and Supreme Court judge selected as its chair, the King Committee sought to develop corporate governance standards that adequately reflected the values of postapartheid South Africa.26

      Published in 1994, the first King Code of Corporate Governance Principles (King I) went beyond the reigning standard of corporate governance, the U.K.'s Cadbury Report,27 to advocate total transparency. Key topics included who should be on a company's board, the role of nonexecutive directors, and the categories of people who should fill this role – none of which had ever been addressed in South African business history. “King I” also advocated for disclosure of executive and nonexecutive directors' remuneration, set guidelines for effective auditing, and encouraged companies to implement a Code of Ethics to demand “the highest standards of behavior.”28 King I did not, however, call for sustainability reporting.

      Mervyn King explained this approach to corporate governance as a way to understand a company's worth in a more comprehensive manner, saying, “The board should take account of the needs, interests, and expectations of the stakeholders…their duty being the best interests of the company for the total maximization of the total economic value of the company, not just book value.”29 South Africa began to address the “shareholder vs. stakeholder” polemic debated so vigorously around the world today. In his quote, King makes clear that the duty of the board is to the company, not to its investors or any particular stakeholder group. While this is true in many parts of the world, there is a common perception, especially in the United States – and in spite of the law's lack of affirmation on this point – that directors are responsible for putting shareholder interests first.30

      Although the report advocated a principles-based approach,31 the JSE made elements of the King Code a listing requirement in 1995 on a “comply or explain” basis.32

King II

      Following large-scale corporate governance failures in the United States, the United Kingdom, and at home, the second King Code of Corporate Governance (King II) was released in 2002. King II included sections on risk management, the role of the board, sustainability, and the suggestion that companies create an internal audit charter.33 In a corporate context, “sustainability” was interpreted as a focus on “those non-financial aspects of corporate practice that…influence the enterprise's ability to survive and prosper in the communities within which it operates, and so ensure future value creation.” Defined as the essence of corporate social responsibility, it means “the achievement of balanced and integrated economic, social, and environmental performance,” or what is commonly called the “triple bottom line.” The report clarified that these sustainability – or nonfinancial – issues should not and cannot be treated as secondary to established business mandates, noting, “It should also be pointed out that the reference to these issues as ‘non-financial issues’ is for ease of reference. There is no doubt…that these so-called non-financial issues have significant financial implications for a company.”34

      The concept of integrated reporting began to take shape in King II through the notion of an “integrated sustainability report.” A chapter devoted to integrated sustainability reporting reviewed the stakeholder-inclusive model. The spirit of Ubuntu, an African values system, was suggested as a natural foundation for effective corporate governance. Reuel Khoza, Chairman of AKA Capital and The Nedbank Group and Chair of the Integrated Sustainability Reporting task team for King II, articulated the connection, saying, “The guiding principle of Ubuntu can be stated in one sentence: ‘Ubuntungubuntu.’ In English you can put it as, ‘I am because you are, you are because we are.’ We are interrelated beings, we operate best when we care about one another.”35

      As discussed above, King II linked a focus on sustainability to company survival over the long term. Thus, King II articulated relationships between good corporate governance and transparent reporting, transparent reporting and sustainability, and sustainability and corporate performance, especially over the long term. These elements remain at the center of the integrated reporting debate today.

      In the years after King II was published, sustainability appeared with great frequency in the national dialogue. While still not enforced by legislation, key aspects of King II's code were further validated when the JSE developed a set of criteria to measure the “triple bottom line” performance of companies, making explicit reference to King II. The move to create a Sustainable Stock Index made South Africa both the first emerging market, and its stock exchange the first worldwide, to bring sustainability issues to the fore through a structured index. In 2008, the passage of the National Framework for Sustainable Development by the Cabinet of South Africa lent government support to the concept of sustainability.36

King III

      Corporate governance visionaries, however, remained unsatisfied with the treatment of sustainability in King II, and King himself believed its placement of sustainability in an eponymous chapter had led companies to isolate it inappropriately from strategy and corporate governance. To underscore the importance of sustainability's integration into business strategy, the group revised the code to include the crucial recommendation that companies combine material financial and nonfinancial data in a single, integrated annual report. King I and II had already achieved the Committee's goal of placing South Africa at the vanguard of international corporate governance, and a third report would allow them to push the envelope again. Furthermore, changes in international governance trends, as well as the passing of the new Companies Act No. 71 of 2008, made a third report necessary.37 In 2009, the third King Code of Governance (King III) was released, and it was applicable from March 2010 onward.

      Departing from King I and King II, King III changed from a “comply or explain” to an “apply or explain” approach in the effort to be more flexible in the application of its now 76 principles. That is, King III was applicable to all public, private, and nonprofit entities, but those entities could opt out voluntarily by explaining why some of those principles were not applicable to their operations. The principles-based approach, rather than a rules-based one, was intended to allow companies to adapt those principles to their own situation to allow for a much wider scope of interpretation than a “comply” or explain approach. Still, many felt it would hinder King III's success unless companies had active shareholders to force them to account for their behavior. Because the United Nations (UN) – backed Principles for Responsible Investment (PRI)38 believed there was not enough guidance in South Africa for institutional investors to behave as active asset owners, the King III Committee recommended the creation of a code according to which institutional investors should set their expectations in order to ensure companies apply the principles and suggested practices effectively.39

      Structurally, the concept of integrated reporting developed in King III emphasized “a holistic and integrated representation of the company's performance in terms of both its finances and its sustainability” to be remarked upon annually in a single report.40 How to represent these elements was subsequently defined in explicit, if aspirational, terms.41 On a higher level, King III emphasized that integrated reporting was not just about year-end disclosure but integrating sustainable СКАЧАТЬ