IR and internal mechanism of change

IR and internal mechanism of change

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IR and internal mechanism of change

Article Description and Relation to IR

The article under critical review in this evaluation is ‘IR and internal mechanism of change’. The financial paper is co-written by Wendy Stubbs and Colin Higgins, both reputable University scholars and academics. The paper investigates the in-house mechanisms that were used by early integrated reporting entities in Australia.  The adopters used the tools of intergraded reporting and the researchers strive to establish the impact of the approach. Specifically, the reports seek to answer whether IR adopters experienced stimulated innovative disclosure mechanisms.

Interest Focus

As a student of contemporary financing and integrated reporting, the reporting is of critical importance to me. For one, it offers an insight into the effectiveness of the newest financial reporting approach in business today (Kuiper 2007). Secondly, the report helps to do a comparative analysis of earlier financial reporting approaches and the contemporary IR approach. Also, one can do an analytical view of IR, and establish its strengths and weakness. The report also offers an opportunity for one to integrate conceptual learning material with the report’s findings.

Problems Statement

The article’s scope is the investigative analysis of the impact and compatibility of IR application with internal mechanisms of Australian adopting companies. To achieve this, the report adopted interview methodology approach.

Methodology

The primary data collection tool was interviews. The interviews were semi-structured to allow flexibility of answer and respondents interaction. The semi-structure format also provided for a wide scope of response from the interviewees. The results offered an in-depth and insightful interview data for analysis. The total number of interviews done was 23, all from different corporate level sources. Finance officers, sustainability managers, and communication administrators made up the respondents sources. The managers and officers were drawn from 15 companies for variety and wide research scope. After the interview, content analysis of the responses was done.  Qualitative coding methods were used to analyze the interviews (Stubbs and Higgins 2014).

Major Findings

One primary finding of the report was the impact of change that integrated reporting had on the organizations studied. The processes and internal structures of the organizations had changed in one way or the other. The change resulted from the introduction of integrated reporting. Some organizations did not necessary experience the changes in their organization’s systems. However, even in such organizations, the management acknowledged the possibility of such actions. The latter group engaged in conversation relation to the same.

The other finding from the report was that the changes in the organizations’ systems did not always reflect innovative simulations. The adoption of integrated reporting in some of these organizations had no or little open mechanism from stimulation of innovations. The other interesting study was that contrary to expectations, IR had brought no radical changes. The expected changes were gradual in processes and structures changes as opposed to transformative ones. The incremental changes were effective only where the organization had systems which supported IR in some ways.

 

Article Impact in Improved Reporting

From the report, it is apparent that the impact of integrated reporting is only as efficient as the internal systems of adopting entity. If a company’s internal structures has no supporting mechanisms for integrated reporting, adoption efficiency will be low. It should is noteworthy that as a relatively new form of reporting, there is very limited benchmarking success stories. That should however not stop organizations from seeking to learn from the early adopters. The central focus of integrated reporting is offering a wide and cross board examination view of the organization.

Shareholders, investors, suppliers, employees and all other relevant stakeholders have different motivations and needs. Each entity focus on some particular area, for example, shareholders focus on dividend values, investors on revenue returns and employees on value exchange in compensation. A report such as financial report would only offer a limited story or report. The IR, on the other hand, will tell the whole story for stakeholders to make informed decisions (Kuiper, Clippinger and Kuiper 2013).

As the report indicates, the current age has changed the definition and dimension of business. In the same way, business reporting should change with the necessary pace. Organizational change should, therefore, be reflected beyond the sustainability and finance reports. With limited empirical studies in the area, Stubs and Higgins report is critical in that light. The phenomena of IR are fairly new with the IIRC still making inroads in other markets beyond Europe (Rai and Rai 2008).

With the focus on holistic reporting, the business that adopts the IR place their overall value on an upward projector. At the very basic level, the concept ensures that all stakeholders are brought on board and comprehensively briefed. When the stakeholders are presented with one comprehensive report, they can understand and value the company better. Factors such as social and environmental elements previously sidelined now provide significant performance analysis tools. With such an approach, it is now possible for the business to be more precise in the short-term, intermediate and long-term planning. Leadership, the internal and external structure of an organization, need to be evaluated in integrated reporting. Such factors have been found by the researchers to be of great impact to a firm.

The chairperson’s position and changes made affected the social disclosure of the organization. It would thus be very crucial to have a chairperson who will influence a higher social disclosure in a community-based entity (White 2009). The ownership was also found to have an impact on the public relations of an entity. While this might not be easily controlled, the company can have a foresight of possible public relations issues. The foresight can only be provided for analyzing an integrated report which provides an insight of the ownership. Understandably, some organizations might hesitate or resist in adopting the IR approach. What the report reveals is that one of the fears that would cause such rigidness is unfounded. Most CEOs would not be a rush to embrace a strategy that changes the fundamentals of their business structure. With profits, brand image and market share at stake, it would not be easy to convince most to adopt a relatively new reporting system.

The report offers a solution by explaining that the adoption of IR does not lead to second order transformation. The changes made were more of incremental and transitional sustainability of the business. In the end, an organization head should look more at the functional aspect of IR as opposed to its structure (Schaltegger, Bennett and Burritt 2006). By offering integrated thinking, the corporate reports made in this manner will be value adding. The core of the business structure will remain untouched with the interpretive schemes sustained.

Organizations need to start now shifting from siloed thinking and into integrative perspective. Incorporating the input of the CFO and their team in nonfinancial reporting could be a start.  An approach that can be adopted in this respect is the push approach. The innovative mechanism can be instrumental in making an impact on the organizational cultural changes. Business strategy can then be gradually steered into mainstream company reporting system. To motivate this, sustainability reports can be applied as catalyst gateways internally and externally.

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