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The Trust Economy: Corporate Reporting’s New Frontier

The scene was brimming with smiles and protruding chests, as the figurative confetti of integrating reporting grandeur showered down on Nedbank Group Ltd. The 2018 Excellence in Integrated Reporting Awards hosted by EY saw the banking group hoist the top award for its Integrated Report, beating out reporting heavyweights Redefine Properties Ltd and Kumba Iron Ore Ltd. Lauded for its detailed explanation of the value it creates for stakeholders, and the meticulous disclosure of strategy, the banking giant’s integrated report should be chuffed at being the darling of the industry this year. In congratulating the group, Arjen Sita, CEO of EY Africa, stressed that while the quality of reports in general continued to improve, integrated reporting should play a role in the restoration of public trust. While this may seem like an odd utterance, Arjen Sita inadvertently contextualised the strained relationship that exists between big business and the public, and the role reporting could play in remedying the tense marriage.

Discord Between Rhetoric and Reality

The South African business landscape, ever craggy if not inexorable, has seen its terrain smeared in controversy in recent times. The anorexic line between corporate rhetoric and lived reality has become murkier by the year.

In May of 2017, Global retail juggernaut Steinhoff’s share price on the JSE was valued at R50.25, equating to a market capitalisation of R240.5 billion. With its philosophy reading “ethical behaviour is good business” and “trustworthy customer dealings”, the retailer straddled more than 40 different brands, in more than 32 countries across four continents – reaching the zenith of its powers. A year later, allegations of earnings manipulations, uncontrolled acquisition sprees and tax fraud meant that the former Chief Executive Markus Jooste was without a job. The same year saw global auditing firm KPMG become embroiled in a media whirlwind when it allegedly failed to challenge irregular treatment of the wedding expenses of a Gupta family member. For an organisation that champions itself on values such as “we seek the facts and provide insight”, there was, let’s say discrepancy, between rhetoric and reality.

The scandals that have rocked both KPMG and Steinhoff illustrate the systemic breakdown in public trust in the private sector. Increasingly populated with information, and equally inflamed by misinformation, the trust economy is becoming the proverbial pothole on the asphalt of big business.

 

Reporting as a Trust Vehicle

As in any family, there is a hereditary condition that every business suffers from in today’s volatile environment: a trust deficit. Due to widely reported corporate failures and collapses, the public and other stakeholder audiences have grown sceptical and cynical about the rhetoric uttered by big business. Arjen Sita explains that, authentic and credible integrated reporting plays an important public interest role in building market confidence and public trust. He suggests “it is only through greater transparency and communication that companies will start to rebuild trust”. Organisations should prioritise the governance of their value creation narrative, Sita stresses. The custodians of organisational strategy, boards or governing bodies, should ensure the story they share with their stakeholders is authentic and credible – devoid of inconsistency between message and manoeuvre.

Nedbank’s victorious effort saw the banking group bring balanced integrated reporting to the fore. The report had an honest and factually-based assessment of the group’s positioning relative to sector peers (they aren’t number one) along with a revealing performance outcome disclosure for each of the Group’s board members relative to their remuneration policy (not all board members were “exceeding”). It is this form of balanced, self-aware reporting, free of unnecessary embellishments and glossy superlatives that provides an environment conducive to trust.  

While more and more organisations are embracing integrated reporting like the child they never knew they had but must now love, a new opportunity presents itself. Integrated reporting presents the opportunity to turn the culture of distrust into an investment proposition and differentiation strategy. As the trust economy experiences a groundswell of misinformation, the value of trustworthy stories that are congruent with an organisation’s lived reality increases. While some masquerade in false-truths and inevitable scandal, it is the shrewd businesses that nurture trust like a fine vintage, that will flourish.