As of June 26, 2010

Concept Paper on WICI KPI in Business Reportingver.1

1. Background and Purpose
The World Intellectual Capital Initiative (WICI) is a private/public sector collaborative aimed
at improving corporate information - with a focus on non/extra-financial information - formore effective decision making. WICI's primary goal is to facilitate the development of a
global business reporting framework for measuring and reporting overall corporate
performance to shareholders and other stakeholders.
One of WICI’s primary activities in working toward this goal is facilitation of and collaborationon the development of common idea on key performance indicators (KPIs) as one of theimportant elements of reporting. KPIs may be financially derived and/or non/extra-financial
in nature, and may include a wide range of market-oriented, industry-specific, and company
specific indicators.
The purpose of this document is to present a conceptual framework for the development ofKPIs for inclusion in the WICI framework, and for the disclosure of such KPIs by companies
and industries in the context of their impact on the value creation potential and/or
sustainability of the company, sector and/or industry.. This will enable enhanced reliability,relevance, transparency and potential comparability of information relevant to management
and potentially to shareholders and other stakeholders.
This document is also the first step of dynamic process through which WICI framework ofbusiness reporting with KPIs will evolve as a cumulative effort of business reporting practice,analysis of it and creation of improved ideas.

2. KPIs in Business Reporting –Expected Benefits
The current financial reporting model alone does not provide sufficient information tooptimize the ability of users to judge the value creation potential of a company,
sector/industry and to foresee the sustainability of its future cash flows. This challenge canbe addressed through the disclosure of non-financial data/information, including KPIs and1
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narrative disclosures on companies’ strategy and value creation processes, in the contextof corporate performance.
However, the substance of narrative descriptions can vary extensively and they are often
vague and subjective. Therefore, it is difficult for this information to be comparable, credibleand substantive. To help address this challenge, WICI is developing a comprehensive
framework for business reporting, including both quantitative and narrative disclosures,
which will help to enhance the relevance and transparency of the information disclosed bycompanies. This framework includes the following elements for business reporting:・An overarching framework of elements disclosed;

・Necessary elements and related definitions, including narrative descriptions as well as
general and industry-specific KPIs which are frequently used;

・XBRL taxonomies to better enable preparers and users to produce, consume andanalyze the related information

We have identified the following challenges with currently existing disclosure frameworks
and/or their requirements:
・Specific interest initiatives require company disclosure of certain indicators based on
their own needs (lack of common uses/definitions) and may not reflect any sharedinterests (and thereby understanding) among relevant producers and consumers;

・The real implication of disclosed indicators cannot be easily understood due to thelack of adequate explanation of their context (lack of contextualization);・Most initiatives mandatorily require companies to disclose indicators as if
one-size-fits-all;

・Most initiatives focused on non-financial information do not tie the disclosure of suchinformation to the value creation processes and corporate performance, thereby
simply raising disclosure cost without adding value;

・The above elements and considerations have generally required companies to
respond in a defensive manner, just by “ticking the box”, resulting in boilerplate
disclosures that do not communicate relevant information related to company
strategy.

The WICI framework is being developed with a view to addressing these challenges.
Accordingly, it is a broad information framework collaboratively developed by and used bymarket participants regardless that it is regulatory or voluntary, and is intended to be flexible
enough to be relevant to diverse stakeholders.
2© 2010 WICI all rights reserved.

It is also intended to establish

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best-practices for the disclosure of narrative information, as well as common definitions forthe most frequently used KPIs, to maximize the value of this information when disclosed inconjunction with traditional financial and other corporate performance reporting.

3. Definition of WICI-KPIs
3-1 KPIs are provided as numerical figures (metrics) related to critical factors of value
creation, and they support the explanation of business strategy linking it to future financial oreconomic performance.
3-2 WICI-KPIs have different attributes from those indicators required by civil society* 1 toachieve its own objectives and purposes, although these indicators might overlap with someWICI-KPIs.
3-3 WICI-KPIs are informative examples of frequently used indicators which are included in
the WICI business reporting framework. They are expected to help a company, sector
and/or industry explain its value creation potential.

4.

Expected attributes of KPIs

4-1 KPIs shall be presented to reinforce the narrative description of a company’s own
value creation mechanisms, which are closely linked with its business strategy.
4-2 Both financial and non-financial information including KPIs shall be accompanied by an
explanation of the company’s corporate value creation mechanism and strategy, as welltheir potential impact on current and future economic/financial performance.
4-3 KPIs are important elements in making visible and assessing the implementation of thevalue creation model/story of a company on a given time line of past-present-future.
4-4 KPIs shall be presented as numerical figures, which may improve the consistency of
the KPI over time and the comparability for users and enhance credibility of the related
narrative explanations. KPIs are not limited to those that represent directly measured data,
1

These indicators are also referred to as ‘social license to operate’ indicators or ‘civil society indicators.’
This concept was used in the ECRA (European Combined Reporting Alliance foe ESG) position paper toththe European Commission dated 12 of February 2010..
3© 2010 WICI all rights reserved.

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but they may also include those quantified through rating methods based on qualitativedata.
4-5 KPIs disclosed externally will likely be a subset of those used in a company’s internal
decision making process, including those that are relevant to a user’s assessment of thecompany’s value creation potential, by striking a balance between transparency andconfidential information.
4-6 Since every company has its own way of creating value and utilizing resources, thesame KPIs are not applicable to all companies in general or in a specific industry. Therefore,WICI does not intend to define a set of KPIs to be disclosed on a mandatory basis. On theother hand, WICI believes it is possible to identify some frequently used KPIs as informative
examples to guide companies, and these are included in the WICI framework as WICI-KPIs.
WICI does not expect companies to follow a “tick-the-box” type of approach to WICI-KPIs,
rather to use those KPIs that are most relevant to their specific business model needs and toalso extend the WICI framework to meet their individual needs and also be available forother market participants (companies and other consumers).
4-7 A company may add, expand and present their own indicators in order to describe theircorporate value creation model appropriately. If a company hopes to utilize their own KPIs, it
should also explain the reason and clarify their definition for users.
4-8 Disclosure of too many KPIs is also problematic, because it distorts and undermines thestrategic and substantive significance/implication of each KPI, while potentially misleadingusers. Therefore, every company should choose a certain number of real ‘key’ indicatorsfor its own value creation mechanism. On the other hand, WICI-KPIs, which include awide-range of indicators for companies to choose from, recognizing that what is relevant for
one company to disclose may be very different from another company.

4-9 Companies are required to disclose the same KPIs consistently if their corporate
strategy/value creation model is not revised. When it is revised, the selected KPIs should
also be changed accordingly.
4-10 WICI-KPIs are the list of frequently used KPIs to meet the current business/economic
environment and situation. Therefore, they shall be modified as needed over time in4© 2010 WICI all rights reserved.

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response to significant changes in the industry specific and/or general businessenvironment.

5. Categories of KPIs
5-1 According to their relevance, KPIs can be categorized into three classes: general KPIs,
industry-specific KPIs, and company-specific KPIs. As a first step, WICI intends to develop
and set up industry-specific KPIs, followed by a process of singling out common KPIs
among these, based on the results of their application.
5-2 From the viewpoint of the nature of critical resources for company value creation, whichare, in many cases, intangible assets, intellectual assets, or intellectual capital, KPIs areclassified in three intangible categories: human capital, relational capital, and organizational
capabilities. WICI-KPIs cover all of these categories. Tangible categories may also exist
apart from these.
5-3

On the basis of the main elements of value creation, KPIs can be classified into

several types, such as those related to leadership, innovation, selection and concentration,
coexistence in society, external negotiation power/relationships, teamwork/organizational
knowledge and process, and risk management/governance. Factors related to ESG(Environment, Social and Governance) are also part of these elements. WICI-KPIs shallessentially focus on the value creation mechanism of companies, sectors and industries.
5-4

KPIs may include those related to social or environmental issues. However, WICI

believes that these types of indicators may be included not because they refer to social
issues per se, but because they may be relevant to a specific company’s value creation
mechanism (e.g. in market, customer or general public reputation).

6. WICI Vision on Company Selection and Use of KPIs
6-1 WICI presents frequently used KPIs as examples or reference in order to facilitate andsubstantiate the explanation by companies of their own value creation mechanism/model.

5© 2010 WICI all rights reserved.

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6-2 WICI’s work is intended to avoid misunderstanding and raise the relevance andcomparability of disclosed information through standardizing definitions, methods ofmeasurement and terminologies. To further this purpose, WICI recommends that, wherepossible, companies disclose WICI-KPIs in the XBRL format which provides aninternationally standardized method for communicating framework concepts.
6-3

WICI encourages companies, where possible/appropriate, to utilize metrics which canbe subject to an external assurance process in order to raise the credibility, objectivity andmateriality of the explanation of economic performance as a result of value creation.
6-4 The number of disclosed KPIs by a company may vary, depending on many factors
including;-Potential for a large volume of disclosures to overwhelm consumers/users-Hierarchical nature of WICI framework enabling users to 'peel the onion' or 'drill
down' on concepts-Context of the business culture where the company is operating-Those concepts actually used by management to assess corporate
performance-

Ability of information users to consume WICI disclosures within the changing
nature of the supply chain (from human to machine assisted consumption)-

Industry and market practices-

Consistent use of concepts across periods-

Balance of concepts

7. Expected Impact
WICI expects the standardization and selective disclosure of WICI-KPIs by companies to:
7-1 Identify and increase the communication of more relevant corporate information byencouraging companies to disclose KPIs related to their value creation processes, while
avoiding “tick-the-box” disclosures. This will be beneficial both for a company itself and forthe consumers of its disclosures;
7-2

Provide users with significant information for analysis by encouraging companies todisclose verifiable KPIs related to their strategic business domains;6© 2010 WICI all rights reserved.

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7-3 Improve understanding of the implications of disclosed KPIs by helping companies toshow the connection between KPIs and their value creation mechanisms and resulting
economic performance, instead of presenting KPIs independently;
7-4 Over time evidence suggests that despite the initial setting up costs, the potential for
decreasing the cost for disclosure and internal management related to indicators byfocusing on the most critical performance indicators that drive economic performance,
while helping companies better to communicate their intentions and strategy by encouraging
focused disclosure thus reducing uncertainty surrounding company activities potentiallyreducing stock price volatility, debt and equity costs;
7-5 Provide companies needed flexibility in the explanation of their economic substanceand business model, while enhancing the comparability of disclosed information;
7-6 Provide skillful investors with significant forward-looking information to judge andforecast corporate performance;
7-7 Enable stakeholders to more easily and appropriately evaluate companies’ performance,
resulting in a positive contribution to the sustainable growth of firms and society as a wholethrough collaboration between companies and stakeholders
7-8 Enable market participants to collaboratively develop / extend / maintain the WICI
Taxonomy framework thereby providing a sustainable market reference for these highly
relevant information concepts.

7© 2010 WICI all rights reserved.