Mike Krzus writes: How many of today’s reform initiatives—whether in the US, UK, EU or somewhere else—are in reality focused on preventing yesterday’s crisis? Financial market reform should concentrate on creating an environment that supports a sustainable economy.
I am not an expert in market reform, so my perspective is somewhat limited. That said, I am smart enough to know that there is no single magic bullet that will protect us from market manipulation, greed, or fraud. After all, no regulation can give anyone the strength to adhere to moral and ethical principles.
Reform initiatives should focus on transparency, which Don Tapscott describes as “accessibility of information to stakeholders of institutions regarding matters that might affect their interests” and sustainability, which for me has two parts. One, relates to intergenerational responsibility for the condition of Earth and the second recognizes that no business is viable for the long-term unless is considers and mitigates ESG risks.
We need only to look towards South Africa to find an excellent step on the path to market reform. As of June 1, 2010, all 450 companies listed on the Johannesburg Stock Exchange are required to publish an integrated financial and sustainability report or explain why they are not doing so.
Integrated reporting as a critical element of market reform? Yes! An integrated report explains the relationship between financial and nonfinancial performance and the extent to which financial performance imposes social or environmental externalities becomes more apparent. The result is improved information for stakeholders about the company’s performance and how it is being achieved. This approach requires appropriate principles of corporate governance, which also need to be addressed in an integrated report.
One mechanism for making integrated reporting a reality is the adoption of “voluntary filing programs” in leading capital markets. Bob Eccles and Mervyn King make a powerful case for voluntary filing programs in Integrated Reports Voluntary Filing published in the online journal of the World Federation of Exchanges.
Every major capital market should follow South Africa’s lead on integrated reporting. It is truly time for integrated reporting and the sooner the better for all of us.
Mike Krzus is the co-author (with Bob Eccles of the Harvard Business School), of One Report: Integrated Reporting for a Sustainable Strategy (John Wiley & Sons, Inc., March 2010). Mike, Bob and Kyle Armbrester are the co-founders of the social movement website www.integratedreporting.org.
This article is part of our NSFM opinion series, in which participants propose specific steps towards real and sustainable market reform. NSFM participants are invited to contribute to the series. Please contact Ebba Schmidt or Frank Jan de Graaf for further information.