August 5, 2018

Innovative Research

BREAKTHROUGH – Governance of Value Creation

2017 Doctoral research at La Trobe University, Melbourne, Australia, has delivered a breakthrough in the long sought after link between governance practice and organisational performance (Governance of Value Creation: An integrated multi-disciplinary governance model for sustained value creation in large scale organisations).

The approach aligns with, extends and demonstrates effective implementation of Integrated Thinking – the operational dimensions of Integrated Reporting backed by the worlds leading accounting and financial organisations.

And, the research demonstrates the causal link between Governance of Value Creation practices and sustained value-creation out-performance. The most advanced large-scale exponent of these practices has outperformed the market by 350% over a 10 year period.

The research engaged Directors at nine of Australia’s ten largest ‘ASX10’ companies (seven at Chair) amongst in-depth interviews with over sixty Corporate, Government, Investment and Innovation leaders.

Governance of Value Creation is a future-oriented equivalent to Financial Governance. It enables accounting-style understanding of the (risk and uncertainty mitigated) future value of all of the work of an organisation, a collaborative network, or, a market sector.

  • It enables better decision making at board and throughout an organisation, and
  • It enables investors to determine the quality of future prospects – through the standardised assessment of the levels of uncertainty associated with future-value (ala JORC – see below)

It enables leaders to assure the ‘Future Fiduciary’ question ‘Are we optimally invested in our own future’. And, it enables consistently enhanced decision-making throughout an organisation in continuous support and optimisation of better future outcomes. The practice enables communication and communities of collaboration on multi-bottom-line (societal, environmental, and other outcomes as well as financial measures) across multiple future timelines.

Governance of Value Creation:

  • Enables leaders to run more effective organisations focusing on productivity as the achievement of more valuable outcomes (not just cutting cost).
  • Creates organisations that can assess, and reliably achieve value from ideas and the full potential of staff and community.
  • Enables investors to value organisations on auditable evidence of delivering the best future prospects (costing future risk).
  • Enables governments to engage in social-value outcome stewardship of collaborative action occurring across collaborative networks and markets.

And, it enables citizens to understand, build trust and participate in what their public and industrial institutions are doing and actually achieving towards making a better world.

PRECEDENT ASSESSMENT – A brief history of the JORC Code

The JORC Code (produced by the Australasian Joint Ore Reserves Committee, which was established by the Australian mining industry), is a code of practice that sets minimum standards for Investor reporting of minerals exploration results, mineral resources and ore reserves.

Since publication 1989 it has become a requirement of the ASX (and NZ) Listing Rules, and together with related forward looking statements is subject to legal and ASIC compliance.

Work on JORC commenced after the Poseidon nickel boom/bust in the late 1960s, providing a standardised evidence base for reporting claims of resource potential. It was developed with the intention of a) increasing the sustainability of financial markets’ resource investments, and increasing the invest-ability of small-cap miners on the basis of the quality of their assets.

JORC is a scalable investible disclosure framework provides an accounting for a complex engineering assessment of uncertainty.

The JORC code defines mandatory disclosure rules for reporting the level of certainty associated with an organisation’s mining or resource assets. It is an accounting for the extent and quality of geophysical testing (how well do we understand what is below the ground), and of the geochemistry (how well do we understand what is involved in extracting the target mineral from the rock).

Since its development, the JORC code has been replicated and implemented across a range of global jurisdictions. There are now moves to harmonise these into a single global standard.

BREAKTHROUGH – The Value-Creation Maturity Assessment

The Value-Creation Maturity Assessment (VCMA) is the assessment model associated with the Governance of Value Creation practices. It has been applied to rate Australian listed companies within research that has demonstrated Governance of Value Creation’s performance impacts.

VCMA is proposed as the basis for an assurable, investible disclosure of the certainty of an organisation’s future-prospects. It is a cross-sector, knowledge economy, societal-value, intangible-value-creation equivalent to the JORC / SAMREC / SME standardised reporting on the levels of certainty associated with extracting value from Mining and Resource assets.

VCMA is fit-for-purpose designed to provide an investible costing of future-risk suitable for long-term capital and complex market conditions:

  • Standardised disclosure of prospects across multiple time-horizons, including the extent of consideration and level of preparedness for standardised contingencies.
  • Standardised disclosure of the levels of certainty associated with future prospects to increase investor visibility of the level of increasing certainty of regenerative and growth activity.
  • Protection of the confidentiality of an organisation’s proprietary strategies.
  • Appropriate roles for directors in preparation and assurance.
  • Increased impact for fiduciaries from a global-scale systemic approach that moves beyond proxy voting and informal behind-closed-doors ‘engagement’ discussions.
  • Increased opportunity for fiduciaries and economic development in application beyond traditional listed vehicles (including government and social programs).

These approaches integrate, and thereby activate (not duplicate) the vast multi-disciplinary body of professional practice. They can be understood as implementation extensions to Integrated Thinking (IIRC) encompassing UN PRI, ICGN, ACSI, CIMA and other Principles, as well has UN SDG goals and a broad variety of additional measures.

Governance of Value Creation, and the Value-Creation Maturity Assessment are the culmination of, not a diversion from, historical investments in good practice.

Large-scale Australian and Global investors are currently considering the use of VCMA to rate long-term capacity of companies within their equities and unlisted portfolios to improve long term performance, and as a contribution to the sustainability of investment markets.

We recommend that all relevant participants across global investment markets play an engaged role within the further development of VCMA practices to accelerate its time-to-market impact as compared to the timelines associated with the development of the JORC Code.