Corporate Board Member managing editor of special projects Jamie Reeves recently spoke with Harvard Business School’s Robert Eccles and Grant Thornton’s Michael Krzus, experts and advocates for integrated reporting. They are the authors of the recently published book, One Report: Integrated Reporting for a Sustainable Strategy.
Corporate Board Member: What is the concept of One Report?
Bob Eccles: The basic idea is that companies have required financial reports, and then voluntary corporate social responsibility or sustainability reports. This is occurring more so in Europe, although the trend is growing here. The notion is pretty simple. Instead of having two reports, they are combined into one report in a thoughtful way. So you’re not just putting a giant staple between two reports, but explaining what you think the relationship is between financial and non-financial performance. How are you managing environmental issues or social issues? How is that contributing to lower costs, higher revenues, penetrating new markets, and green products, whatever it is? So issue a single, annual report that wouldn’t be a separate document from the financial statement. It doesn’t mean only one report, however, so supplementary information could be provided to other stakeholders ideally using the company’s website. Look at the Philips website, for example. They do an excellent job of providing information in an integrated way. Natura is another example. United Technologies is another example and is the only U.S. company we are aware of that is doing this.
You’re using the Internet to disseminate as well as collect information, which improves dialogue and engagement with stakeholders so that you have a better understanding of what their expectations are on the part of the company, as well as what their expectations are about information they want and how good a job the company is doing in providing it.
Mike Krzus: The idea of moving to one report is an evolutionary process. It isn’t binary. There’s no necessarily right or wrong way, particularly in the early stages as a company begins this process, which is especially illustrated by the companies that have been doing it the longest. Novo Nordisk in Denmark comes to mind. They view it very much as a step-by-step, learn-as-you-go process. They publish the report. They have a means in place to engage their stakeholders and their broad community, which ranges from local investors to institutional investors to NGOs and governments, to get a better sense of what kind of information they should be disclosing. Have they been disclosing information well; is it useful; is it being used when being downloaded by consumers?
The other point is a critical one about what One Report is—a migration to an Internet-based world. One of the biggest lessons Bob and I learned is you must overcome the paper paradigm. It’s a very difficult hurdle to cross—not thinking within the boundaries of an 8.5x11 sheet of paper.
CBM: Will there be some reticence on the part of attorneys and General Counsel as companies do this? Can companies actually streamline reports into one shareholder friendly report?
BE: No, it’s a non-issue. I mean United Technologies did it and they’re a Dow Jones 30 company. If their lawyers thought there was a lot of legal risk, they wouldn’t have done it. It’s not the one report where lawyers raise concerns, though. It’s the degree of transparency that’s made available. So as you start providing more information, whether it’s financial information or non-financial information, beyond what you’re required to report so the issue that typically gets raised is are we creating potential liabilities?
CBM: Do you have any thoughts on CERES’ sustainable reporting? Does this trend of one reporting fit in with that model?
MK: Mindy Lubber, CEO of CERES, is quoted in our book. They’re quite enthused about it. They’ve come up with recommendations on essentially the non-financial performance side and are heavily focused on the environment. Another group we should mention is the Global Reporting Initiative.
BE: yes, Bob Massie created the Global Reporting Initiative under CERES some years ago, and then it spun off into a separate organization. Different groups in Europe are working on coming up with standards for non-financial reporting. We think that’s great because that means that the non-financial data will be of higher quality.
MK: The critical point here is a need for everyone that’s developing these additional frameworks for non-financial information, and this is easier said than done, to take a step back and ask, “how do these potential frameworks fit together?” If you’re viewing this from a company perspective, you can look at all of these frameworks and ask, “Gee, which one do I follow?” And to that point, I think there are some initial signs in the marketplace that a lot of these groups are beginning to recognize that and are starting to engage in conversations about how do we take the best of all these frameworks and see if we can come up with what I’ll call a universal standard.
CBM: Do you think the idea of filing one, integrated report will catch on in the USA?
BE: This could all happen pretty fast. Mike and I have been working in this domain of improving corporate reporting for a long time. We’ve never seen this positive of a response to an idea. You know, typically with companies there will be pushback or investors will say we don’t think the information is all that useful, and investors vary. South Africa has mandated integrated reporting. Every company listed on the Johannesburg Stock Exchange, starting July 1, has to do it. The French National Assembly is voting on this in the spring. A group called the Prince's Accounting for Sustainability Project has formed an international integrated reporting committee with the intention of getting this on the agenda of the G-20 in some fashion. My prediction is by the end of this year there will be a tremendous amount of discussion about integrated reporting. Board members pay a critical role. They can essentially go to management and say, “We want an integrated report for internal purposes and representing shareholders and, increasingly, other stakeholders, we think it should be made available externally.”
CBM: What is the board’s role in the integrated reporting movement?
MK: I think the board plays a very critical oversight role. Obviously, the board doesn’t meddle in the details of financial reporting, but to the extent that the company has long term liability. And I think that’s the way I would think of the whole term sustainability. It’s not just about hugging the tree. It’s about whether or not this company is going to be in business in 25 or 50 years and do they have a strategy that may get them there. And that certainly is the role of the board.
Visit www.GrantThornton.com/OneReport for more information.
Topic tags: audit committee, CERES, corporate social responsibility, integrated reporting