2. PwC
Scope: OECD principles of CG and PwC Integrated
Reporting Framework
2
Competitors
Macro-economics
Regulation
Risk
Governance
Remuneration
Financial
Operational
Social contribution
Environment
Business model
Dependencies
1. The financial and operating
results of the company.
2. Company objectives
3. Major share ownership and
voting rights
4. Remuneration policy for
members of the board and key
executives, and information about
board members, including their
qualifications, the selection process,
other company directorships and
whether they are regarded as
independent by the board.
5. Related party transactions
7. Issues regarding employees
and other stakeholders
8. Governance structures and
policies, in particular, the
content of any corporate
governance code or policy and
the process by which it is
implemented
6. Foreseeable
risk factors
3. PwC
External drivers
3
Andrew Packman
PwC UK
“In the wake of the global economic
downturn, the need for economic and
political stability has intensified the
calls for greater transparency and a
perceived need to strengthen
accountability and good governance
for both governments and business.”
Competitors
Macro-economics
Regulation
Risk
Governance
Remuneration
Financial
Operational
Social contribution
Environment
Business model
Dependencies
4. PwC
There are a range of transparency initiatives currently in
force or being proposed at an international level
Just some key examples:
EU Directives on Transparency: The revised
Transparency Directive closes an existing gap in the
notification requirements by requiring disclosure of major
holdings of all financial instruments that could be used to
acquire economic interest in listed companies. A second
major change is the fact that the requirement to publish
quarterly financial information was abolished. This aims at
reducing the administrative burden and encouraging long
term investment.
4
Dodd-Frank Wall Street Reform and
Consumer Protection Act: To promote the
financial stability of the United States by improving
accountability and transparency in the financial system,
to end ‘‘too big to fail’’, to protect the American taxpayer
by ending bailouts, to protect consumers from abusive
financial services practices, and for other purposes.
Extractive Industries Transparency Initiative
(EITI): coalition of governments, companies and civil society
groups, investors and international organisations . The EITI
established a disclosure framework for companies to publish
what they pay and for governments to disclose what they receive.
Measures to help improve corporate transparency and
strengthen director disqualification laws have been outlined with
the publication of a discussion paper ‘Transparency
and Trust’ by the Business Secretary Vince Cable, Member of
the Parliament
5. PwC
Government transparency
5
Jan Sturesson
PwC global leader, Government
and Public Sector
“By introducing accrual accounting, governments
demonstrate their desire to achieve greater
transparency and accountability.”
The demand has never been stronger for governments to adopt sound and transparent accounting
rules as part of their wider public finance management. It’s vital for governments and their
stakeholders to understand the full economic impact of today’s decisions that affect financial
performance, financial position, and cash flows. A broad range of stakeholders needs to know what all
the liabilities are in the government balance sheet, including long-term debts and pension obligations.
Transitioning to an internationally recognised, accruals-based acounting framework is a challenge. It
demands a clear vision and strong political commitment to strengthen public institutions, develop high
quality standards and practices, enhance skills, and build capacity. Converting to accrual accounting
standards based on IPSAS (International public sector accounting standards) usually involves a
transformation project that extends well beyond the finance function and takes several years.
7. PwC
Example case studies
PwC standard
The PwC Anti Money Laundering Risk
Management Standard applies preventive
measures to cover both money laundering and
terrorist financing. By implementing and
complying with this standard, Member Firms can
substantially reduce their risk of becoming
involved in actual or potential money laundering
activities.
Each territory has a Designated Individual
Responsible for Anti Money Laundering in that
Member Firm. Staff members are trained and are
expected to report any suspicions related to
potential money laundering activities to this
individual. Even when there are no local or
external reporting requirements, internal
reporting will help to identify and address
reputational risks to that firm and the network.
Example project we delivered in MN
Description: client problem, what we did,
outcome.
7
8. PwC
Strategy
8
Clive Adamson
Director of Supervision,
Financial Conduct
Agency
“An effective culture is one that
supports a business model and
business practices that have at their
core the fair treatment of customers
and behaviours that do not harm
market integrity. This is very different
from what we have today where...the
focus has been on ensuring compliance
with a set of rules rather than doing
the right thing for customers”
Competitors
Macro-economics
Regulation
Risk
Governance
Remuneration
Financial
Operational
Social contribution
Environment
Business model
Dependencies
9. PwC
PwC Analysis of Codes of Conduct
Codes set out standards of behaviour and practices for organisations across the public
and private sectors, typically underpinned by the organisations’ underlying values. Some
codes are labelled Code of Ethics, Code of Business Practices, Code of Values, or Code of
Behaviours, but the most common term has become Code of Conduct.
Key findings:
• While codes continue to have relevance and meaning for many businesses, this is not
always the case. Some organisations still seem to approach their codes narrowly as a
matter of compliance. They use them as a set of rules and regulations acting as a
stick to deliver effective governance through command and control language.
• There is a growing shift from mainly rules-based policies to a values-based
approach, and the emergence of a good practice which supports learning and
decision making by providing practical tools.
9
10. PwC
Key elements of good practice design
10
Companies adopting the
three good practice design
elements
11. PwC
How you can maximise the power of the Code
11
2. Diagnose the ‘as is’ state towards ethical conduct.
3. Refresh the code to address key gaps. Make use of positive and empathic language to
re-position ‘doing the right thing’ as a carrot rather than a stick.
4. Test or pilot the draft code with working groups.
5. Design and implement a plan to communicate the code to employees and to partners.
6. Develop approaches to reporting and assessment of the code’s impact on
organisational behaviour, including the reporting of bad news and decisions on
conflicting objectives.
7. Consider ways of embedding the code in day-to-day business, such as through HR
linking to performance management, recruitment and hiring processes.
1. Agree board-level understanding of the purpose of the code.
12. PwC
Resources and Relationships
12
The ‘Trust and
Transparency’
discussion paper,
UK Government
“There are around 350
individuals who each hold
more than 100 directorships
in the UK, with cases of
people holding up to 1,000”
Competitors
Macro-economics
Regulation
Risk
Governance
Remuneration
Financial
Operational
Social contribution
Environment
Business model
Dependencies
13. PwC
Board: some key challenges
Bribery and corruption
“The prevention of bribery and corruption presents a huge challenge for companies and
their boards in today's environment. The issue is exacerbated in several ways --
materiality doesn't apply, so a crime could involve amounts that are immaterial to
reported financial results. Gift-giving is also accepted as an inherent part of doing
business in many local cultures. Another difficulty for companies is that they can be held
responsible for the behavior of any third party they do business with, such as distributors,
agents and resellers.” — Don Keller, Partner, Center for Board Governance
13
CEO and board chair roles
Separating the board chair and CEO roles remains an ongoing debate in corporate
governance with compelling arguments on both sides. The issue centers around whether a
potential conflict of interest exists when the roles are combined and whether there is an
appropriate balance of power between the CEO and the independent board members. As
of 2012, 43% of S&P 500 boards currently separate the role.
14. PwC
Board: some key challenges
14
Communicating the strengths of the Board
The investors want to know that the company’s board is properly composed and
balanced, with skill sets that complement one another. They also want to know that a
range of views will be expressed in the spirit of constructive challenge, and that the
boardroom environment allows for this. We suggest showing how the board ‘fits
together’, highlight:
• the balance of skills, experience and personal characteristics on the board;
• the diversity of the directors, which may increase the range of views expressed;
• the key aspects of the boardroom culture that the chairman encourages.
Assessing the Board effectiveness
How to use board evaluations effectively to increase understanding of the boards’ priorities
in areas of underperformance. How to reconcile the reporting of board effectiveness with
the company’s corporate performance and remuneration packages. We suggest that Boards
pay attention to disclosure of this information.
The level of disclosure differs, from country to country. For example, according to Russian
PwC survey of Board members in 2013, 20% of the boards bring in a third party when
conducting their performance evaluation and only 64% disclose the evaluation results.
15. PwC
Example case studies
Corporate governance framework review and recommendations (Mongolia)
Our team performed a comprehensive review of the Client’s CG framework with the focus
on the three categories of recommendations: to address non-compliance, develop to the
best practice level, strengthen the position at the best practice level.
We addressed the following CG framework elements in the report:
• Board of Directors
• Effective and appropriate committee structures
• Executive management
• Transparency and disclosure
• Corporate citizenship
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16. PwC
Performance
16
An investor’s
view
‘Companies can either produce the
annual report smartly, or they can
produce it just because they have to.
Those who do it smartly will
positively impact their position in
the capital market’
Competitors
Macro-economics
Regulation
Risk
Governance
Remuneration
Financial
Operational
Social contribution
Environment
Business model
Dependencies
17. PwC
Number of
pieces=40
Big Picture
Close-up pictures
(partial
connectivity)
without big picture
Pieces of
information without
connectivity
Number of
pieces=40
Number of
pieces=40
How is as important as what: joining the dots
Same volume, different insight
18. PwC
PwC integrated reporting model and
benchmarking
Based on a decade of research
with over 3000 companies and
investors globally across all
sectors
Three overarching criteria:
• Content – does the report contain
all the elements we would expect to
see and focus on the key messages?
• Quality – the depth of information,
for example quantified data, targets,
benchmarks
• Linkage – demonstration of a
consistent message and clear
integration between the elements
reported
18
Competitors
Macro-economics
Regulation
Risk
Governance
Remuneration
Financial
Operational
Social contribution
Environment
Business model
Dependencies
19. PwC
Link market
discussion to
strategic choices
What is clear and what is not
Headline findings – PwC European benchmarking 2012
25%
Slide 19
Discuss future
market trends
85%
20. PwC
Base reporting on
strategic themes
What is clear and what is not
Headline findings – PwC European benchmarking 2012
25%
Slide 20
Include strategic
priorities
94%
Embed sustainability
in strategy
26%
21. PwC
Align KPIs with
remuneration
What is clear and what is not
Headline findings – PwC European benchmarking 2012
24%
Slide 21
Explicitly identify
KPIs
86%
Some alignment of
KPIs with strategy
36%
22. PwC
PwC’s 2013 mining industry investor survey
Extracting value: What do investment professionals need from mining
company reporting?
Key findings of the survey include:
• Investment professionals following companies in the mining sector tell us they do
value corporate reporting.
• They particularly want to hear about measures that populate their models and that
move the market. Investors and analysts want not only to be able to access them
easily, but also to have confidence in their reliability.
• Investment professionals link the quality of a company’s reporting with the quality
of that company’s management. The better the reporting, the better they perceive
the management team to be.
22
23. PwC
The International Integrated Reporting Council
(IIRC)
The IIRC brings together leaders from all the main international
standard-setting and regulatory bodies with companies,
investors and other key representatives to develop an
internationally accepted integrated reporting framework.
• Financial and sustainability standard setters
(IASB, FASB, GRI …)
• Securities and financial regulators
(IOSCO, TSE and other stock exchanges, Financial Stability Board…)
• Investors (UN PRI, ICGN, asset owners and asset managers)
• Companies (WBCSD, UNGC, BSR, 82 pilot companies and others)
• Intergovernmental organisations (World Bank, UNCTAD)
• Accounting (IFAC, accounting firms, accounting bodies)
• Civil society and academia (A4S, WWF, Transparency International,
WRI, Harvard, Uni. Sao Paolo, Uni NSW)
Slide 23
24. PwC
Video 1: Why does HSBC think the integrated
reporting framework is important?
24
25. PwC
12 reporting tips
25
1. Have a backbone – strategy
2. Back to basics – business models
3. The big picture – external drivers
4. Tell the whole tax story – it’s more than just numbers
5. Cash is still king – cash and debt
6. Survival of the fittest – sustainability
7. Bottom up – segments
8. Flash in the pan – underlying performance
9. Not the kitchen sink – principal risks
10. What gets measured gets done – KPIs and remuneration
11. Cracking the code – corporate governance
12. Joining the dots – integrated picture
26. PwC
12 reporting tips
26
Tip Description
1. Have a backbone
– strategy
Use your objectives and strategy to underpin your reporting and
to provide the context for your activities and performance.
Strategic statements set in isolation from the rest of your
reporting can appear as hollow statements of intent.
2. Back to basics –
business models
Explain your key capabilities and the key resources and
relationships you depend on to create and sustain value. Consider
both your key inputs/outputs as well as your own activities, and
demonstrate how your business model interacts with other key
elements of reporting – for example, strategy, risks and KPIs.
3. The big picture –
external drivers
Put your results in the context of market trends. Provide
management’s perspective on the competitive landscape and
macro environment to allow the reader to evaluate your strategic
choices and actions along
with the quality and sustainability of performance.
27. PwC
12 reporting tips
27
Tip Description
4. Tell the whole
tax story – it’s
more than just
numbers
Provide clear information for stakeholders on how tax impacts
your business, looking more broadly at tax strategy, risk
management and the wider impact of tax as well as detailed tax
performance in the tax note. Communicate in a simple and
straightforward way to help readers of your report understand
your tax affairs.
5. Cash is still
king – cash and
debt
Explain how you make money, generate cash and are funded.
Competition for capital is fiercer than ever before so consider
including detailed disclosure about your operating cash flow
strategy and performance and consolidating your debt disclosure.
Provide real granularity into your debt maturity schedule and
reconciliation of free cash flow to movements in net debt.
6. Survival of the
fittest –
sustainability
Demonstrate an understanding of the material sustainability risks
and opportunities relevant to your organisation and your key
stakeholders and how they are integrated into your core corporate
strategy. Take a short-, medium- and longer-term perspective, and
consider the impact of your business across your entire value chain
when considering materiality.
28. PwC
12 reporting tips
28
Tip Description
7. Bottom up –
segments
Challenge whether the segment analysis is not just compliant but
also makes visible the different dynamics inherent within the
business. Consider including a few additional line items such as
working capital, operating cash flow and capital employed for
each segment.
8. Flash in the pan –
underlying
performance
Explain what is driving financial performance – is growth
sustainable or not? Consider using bridge charts to help
investors understand what is driving revenue profit and growth.
Embrace non-GAAP measures to support your messaging but
ensure they are clearly identifiable, consistently defined and
reconciled to your GAAP numbers where appropriate.
9. Not the kitchen
sink – principal
risks
Highlight principal risks, not all risks. How might they derail
your strategy? How are they managed? How has the risk profile
changed during the year and what is the sensitivity of underlying
performance to changes in these risks?
29. PwC
12 reporting tips
29
Tip Description
10. What gets
measured gets done
– KPIs and
remuneration
Identify key financial and operational KPIs used to assess
progress against strategic priorities. Explain clearly how
management are incentivised, highlighting the link between
strategy, KPIs and the remuneration package.
11. Cracking the
code – corporate
governance
Go beyond compliance and bring governance reporting to life by
demonstrating the activities of the board, the skills and
experiences each board member brings to the table and how they
interact. Focus on what makes your company distinctive and set
the tone from the top.
12. Joining the dots
– integrated picture
Avoid silos and present a clear, coherent and integrated picture
of how your strategy, governance, performance and prospects
lead to long-term value creation. Consider how: the description
of your business model links to your discussion of external
drivers and strategy; strategy aligns with your KPIs and
remuneration; and risks relate to the narrative elsewhere.
30. PwC
Example case studies
30
A major commercial bank in Mongolia
Development of the Environment and Sustainability (E&C) policy
Assistance in developing the bank’s E&S Policy, procedures and tools, such that it complies with Mongolian
environmental and social laws, international best practices and the bank’s lenders’ requirements.
PwC Mongolia together with PwC Netherlands performed an initial needs assessment to assess the current state E&S
framework at the bank.
We organized and ran a working group (composed of representatives of different relevant departments, including
corporate lending, international banking and risk management) in order to share our common understanding of the
Bank’s E&S risk profile and E&S risk appetite. We jointly worked on the preparation of the policies and procedures
regarding the environmental and social risks with the Bank E&S officers.
We delivered training on ESMS best practices, international standards, current issues and furthermore identifying
and assessing E&S risks, bank’s policies on E&S risks assessment and using the assessment toolkit.
We evaluated implementation of the E&S policies and procedures including determining whether E&S risk assessment
procedures were implemented in line with the E&S policies;
We assessed whether account managers and risk analysts have sufficient knowledge of the E&S policies and defined
areas for improvement to facilitate further implementation of the E&S risk assessment procedures.