One Report E-Book

Robert G. Eccles

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Sprache: Englisch

Seitenzahl: 375

Veröffentlichungsjahr: 2010

Beschreibung

Winner of the 2010 PROSE Award for Best Business, Finance, &Management Book! "One Report" refers to an emerging trend in business takingplace throughout the world where companies are going beyondseparate reports for financial and nonfinancial (e.g., corporatesocial responsibility or sustainability) results and integratingboth into a single integrated report. At the same time, they arealso leveraging the Internet to provide more detailed results toall of their stakeholders and for improving their level of dialogueand engagement with them. Providing best practice examples fromcompanies around the world, One Report shows how integratedreporting adds tremendous value to the company and all of itsstakeholders, including shareholders, and also ultimatelycontributes to a sustainable society. * Focuses on the emerging trend of integrated reporting as a toppriority for companies, investors, regulators, auditors and civilsociety * Provides compelling case studies from some of the world'sleading companies doing integrated reporting * Addresses how companies can move toward One Report and how itcan become a keystone of a sustainable strategy for both thecompany and society * Explains what others-such as analysts, shareholders, otherstakeholders, auditors, regulators, legislators, and civilsociety-need to do to enable the rapid and broad adoption of OneReport Filled with case studies and the most current trends onintegrated reporting, this book is an invaluable guidebook on thefuture of reporting and how this future can lead to a sustainablesociety.

Leseprobe

Table of Contents

Title Page

Copyright Page

Foreword

Acknowledgements

Introduction

Notes

Chapter 1 - What Is One Report?

The Meaning of One Report

Novo Nordisk: An Early Adopter of One Report

Rhetoric and Design in Natura’s 2008 Annual Report

The Urgent Need for One Report

Notes

Chapter 2 - United Technologies Corporation’s First Integrated Report

UTC’s First One Report

A Brief History of Corporate Reporting at UTC

More on the 2008 Report

UTC’s Half Century of Corporate Reporting

Notes

Chapter 3 - The State of Financial Reporting Today

Background on Financial Reporting

Complexity

Extensible Business Reporting Language (XBRL)

Auditing

Notes

Chapter 4 - The State of Nonfinancial Reporting Today

A Typology of Nonfinancial Information

Intangible Assets

Key Performance Indicators

Environmental, Social, and Governance Metrics

Assurance on Nonfinancial Information

Notes

Chapter 5 - Sustainable Strategies for a Sustainable Society

Sustainability at Ricoh

Corporate Social Responsibility

Sustainability

Sustainable Competitive Advantage

Sustainable Strategies Require Integrated Reporting

Corporate Reporting at Ricoh

Notes

Chapter 6 - It’s Time for One Report

The Case for One Report

One Report for a Sustainable Strategy for a Sustainable Society

The Time Is Now

Objections to One Report

The Bottom Line

Notes

Chapter 7 - The Internet and Integrated Reporting

A Web-Based Perspective on One Report

The Essential Elements of Web-Based Integrated Reporting

Web 3.0 and Integrated Reporting

Notes

Chapter 8 - Integrated Reporting for a Sustainable Society

Companies Must Take Responsibility

Innovation

Support from the Investment Community

Development of Standards

Legislation and Regulation

Support from Civil Society

Notes

Appendix A - Companies and Organizations with URLs

Appendix B - Acronyms

Index

Copyright © 2010 by Robert G. Eccles and Michael P. Krzus. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data

Eccles, Robert G.

One report : integrated reporting for a sustainable strategy / Robert G. Eccles, Michael P. Krzus. p. cm.

Includes bibliographical references and index.

eISBN : 978-0-470-61582-9

1. Corporation reports. 2. Social responsibility of business. 3. Sustainability. I. Krzus, Michael P. II. Title.

HG4028.B2E23 2010 658.1-dc22

2009046297

Foreword

It was many years ago I first heard the optimistic adage “you do well by doing good.” Back then, advocates of so-called Corporate Social Responsibility were trying to make a business case for good corporate behavior. Few were persuaded.

The main reason for lack of success in winning support for the “being good,” is that the adage was not true. Many companies did well by being bad. Creative accounting, unfair labor practices, corporate secrecy, monopolistic behaviors, externalizing costs, and shady environmental behaviors could help beef up the bottom line. Not to mention that corporate executives themselves could “do well” by paying astronomical bonuses, even while their companies were struggling.

But today all this is changing.

The collapse of the financial system and the global economic crisis of 2009 were a wake-up call to the world. It’s become clear that business can’t succeed in a world that is failing. We need to rethink and rebuild many of the organizations and institutions of the past around a new set of principles and behaviors.

In fact, the crisis and its aftereffects represent more than a recession. It is a punctuation point in history. Arguably many of the pillars of economic and social life have come to the end of their life cycle. The financial services industry, for example, needs more than a fresh infusion of capital or some new regulations; it needs a whole new operating model. Our transportation system, based on the internal combustion engine, is changing the earth’s climate. There is no challenge more important than creating a green energy grid and a reindustrialization of the planet for sustainability. The American auto industry, once the epitome of the industrial economy, has collapsed. As companies in other sectors cut their costs to stay alive, many began to see that hunkering down, while necessary, was insufficient for success. From manufacturing to retail, smart managers have begun to initiate long-overdue changes to their structures and strategies. There is a growing appreciation that “conventional wisdom” isn’t going to cut it for success in this century. We need to reinvent our institutions.

At the same time, an old force with new power is rising in business, one that has far-reaching implications for most everyone. Nascent for half a century, this force has quietly gained momentum through the last decade and is now triggering profound changes across the corporate world. Evidence suggests firms that embrace this force and harness its power will thrive. Those who ignore or oppose it will suffer.

The force is transparency.

Globalization, instant communications, organized civil society—and now a crisis in trust, have changed the rules of the game. Firms are being held to complex and changing sets of standards—from unrelenting webs of “stakeholders” who pass judgment on corporate behavior—to regulations, new and old, that govern and often complicate everyday activities. In an ultra-transparent world of instant communications, every step and misstep is subject to scrutiny. And every company with a brand or reputation to protect is vulnerable.

Customers can evaluate the worth of products and services at levels not possible before. Employees share formerly secret information about corporate strategy, management, and challenges. To collaborate effectively, companies and their business partners have no choice but to share intimate knowledge with one another. Powerful institutional investors today own or manage most wealth, and they are developing X-ray vision. Finally, in a world of instant communications, whistleblowers, inquisitive media, and Googling, citizens, NGOs, and communities routinely put firms under the microscope.

I’ve produced a few “studies in bad timing” in my life. One stellar example was a book I co-authored with the brilliant business strategist David Ticoll: The Naked Corporation: How the Age of Transparency Will Revolutionize Business. As people researching how technology changes things, we became interested in how the Internet would change the use and communication of information. We defined transparency as “access to pertinent information by stakeholders.” By “pertinent,” we meant information that can help if you have it and hurt if you don’t.

It’s been almost a decade since the book hit the streets. We argued that the corporation is becoming naked, and as a result will have no choice but to rethink values and behaviors—for the better. Our tag line was “You’re going to be naked, so you’d better be buff!” Reviewers either loved the book or hated it. Sales were modest. My deepest regret, in hindsight, was that clearly the book was not read and heeded by the leaders of our financial services industries. Lacking “fitness,” they brought down the industry and with it the global economy.

To paraphrase Victor Hugo, there is nothing so powerful as an idea whose time has come—again. To build trusting relationships and succeed in a transparent economy, growing numbers of firms in all parts of the globe are being forced to behave more responsibly than ever. Disgraced banks represent the old model—a dying breed. Business integrity is on the rise, not just for legal or purely ethical reasons but because it makes economic sense. Companies need to do good—act with integrity—not just to secure a healthy business environment, but for their own sustainability and competitive advantage. Firms that exhibit ethical values, openness, and candor have discovered that they can be more competitive and more profitable. Institutional investors who practice these behaviors will be more sustainable themselves and NGOs that do the same will increase their impact on the causes they care about.

Further, today’s winners increasingly undress for success. Our research suggests that open corporations perform better. Transparency is a new form of power, which pays off when harnessed. Rather than to be feared, transparency is becoming central to business success. Rather than be stripped unwillingly, smart firms are choosing to be open. Over time, what we call open enterprises—firms that operate with candor, integrity, and engagement—are most likely to survive and thrive. And any bank executives who think they can return to the old ways are mistaken. In the new business environment firms will do well by doing good.

Which is why I’m so excited about the publication of One Report.

“How can anyone be excited about corporate reporting,” you might ask?

Fair enough—in the past, the typical annual report was a pretty bland and limited way of communicating with shareholders and other stakeholders. It was historical, focusing on the past. It was a static document, produced on paper and prohibiting the reader from further exploration or analysis. It dealt primarily with financial information. While essential, financial data alone did not convey a comprehensive picture of corporate health. It was opaque—often the more detailed data, the more difficult it was to understand. There was little nonfinancial information necessary to provide a clear view on current performance and enable more accurate predictions regarding future prospects. It was separate from the company’s “Corporate Social Responsibility” or “Sustainability” report, relegating these documents to minor status and preventing the integration of information about critical topics such as risk. Because the report was paper, it was an island—not linked to other pertinent data and information that might help a stakeholder understand the company or an executive manage it more effectively.

Measuring and reporting nonfinancial information has become important for reasons other than valuation. Because of the huge changes happening in the global economy and every industry, and the challenges of rebuilding society for the 21st century, nonfinancial aspects of performance have implications beyond boards, auditors, audit committees, and investors. It’s time to acknowledge that firms do have stakeholders, who have a legitimate, important, and overall healthy interest in the breadth, veracity, and integrity of corporate performance and behavior. Thus, directors and managers find themselves in a vastly more complex environment, increasingly accountable to and influenced by multiple stakeholders and pressured from all sides for better reporting on corporate health and behavior.

As a result, boards of directors are facing rising expectations in corporate reporting, but many directors feel they lack effective tools to deliver. Directors are spending more time and are asking more questions. Managers are all but exhausted trying to provide relevant information in a form directors and others can digest. Everyone is working harder, but it’s not clear that we’re any wiser for their efforts.

The bottom line is that shareholders, board members, regulators, employees, customers, journalists, and other stakeholders have had a very limited view of the corporation. The irresistible force of transparency has met the immovable object of an outdated and even dangerous model of reporting. Exhibit A? The world could not foresee the impending collapse of the financial services industry.

It’s time for a change in reporting. It’s time for “One Report,” as defined by Eccles and Krzus. We need a comprehensive, networked, real-time, living-and-breathing system that, through integrated reporting, provides a single version of the truth to all concerned parties, inside and out. When viewed in this context, rethinking reporting is not a bore—it is at the very heart of the success and survival of companies and even our economy.

The good news is that the digital revolution has matured to the point where this is possible. Dubbed the Web 2.0, the Internet has evolved from a network of Web sites that enable organizations to simply present information. It is now a computing platform in its own right. Elements of a computer—and elements of a computer program—can be spread out across the Internet and seamlessly combined as necessary. The Internet is becoming a giant computer that everyone can program—providing a global infrastructure for creativity, participation, sharing, and self-organization.

When all companies share a global computer with all stakeholders, there is new world of possibilities for positive transparency and engagement while at the same time appropriately protecting intellectual property, legitimate corporate secrets, and the privacy of individuals.

I can say with confidence that there are no two better people in the world to lay out the future of reporting than Bob Eccles and Mike Krzus. Over the years, I have been inspired by their vision and tireless attempts to bring about better transparency, corporate governance, and business performance through better reporting. It is in part because of their leadership that the reporting landscape is changing, not just in theory but in practice. As you will read, there are a number of powerful examples of companies doing exactly what Eccles and Krzus have been advocating for years.

If you want your company to succeed and be trusted, you should read this book. If you are a person with integrity, the book will be music to your ears. If you want to live a principled life of consequence, please read this book and act on its recommendations for how integrated reporting can be adopted as broadly and rapidly as possible.

For the expanding global economy and our shrinking and increasingly fragile planet, the stakes are very high that we get this right.

DON TAPSCOTT

Don Tapscott is the co-author of 13 books about technology in business and society, most recently Grown Up Digital: How the Net Generation Is Changing Your World. His upcoming book (with Anthony D. Williams) is working titled Rebuilding the World. He is Chairman of the think tank nGenera Insight.

Acknowledgments

In writing this book, we were fortunate to have the support of four extremely capable research associates. This book could not have been written without Susan Thyne, a full-time research associate at the Harvard Business School. We are deeply grateful to her for her hard work and good humor throughout an intense project. Susan did most of the key library research and is one of the toughest and most capable editors we have ever met. Every single chapter bears the stamp of her rigorous mind and insistence on clear exposition. She also made important substantive contributions to Chapter 5. Kyle Armbrester also provided extremely valuable input through online research and his knowledge of the Internet, doing this on his own time while holding down a full-time job as a freelance IT strategy consultant and project leader at The Exeter Group. In particular, we could not have written Chapter 7 without him, but he helped in many other ways as well. Akiko Kanno of Harvard Business School’s Japan Research Center was instrumental in writing the Ricoh example and served as an effective bridge between two cultures while having to do extra translations as well. Dilyana Karadzhova was extremely helpful just when we needed an extra pair of hands by jumping in toward the end, even as she was starting her senior year at Harvard College, and teaming up effectively with Kyle on Chapter 7. Finally, we want to thank our editor at Wiley, Tim Burgard, for his assistance and encouragement—and required good humor at times—during the intense period of writing this book.

The content of this book was heavily influenced by what for us turned out to be two important meetings. The first was at Saint James’s Palace on September 11, 2009, and is described more fully in Chapter 1. As a result of this meeting, we were forced to sharpen our ideas, and the first and last chapters were dramatically changed. That said, we bear sole responsibility for their content and the book as a whole. This meeting also increased our sense of urgency about the need for integrated reporting and gave us some needed energy to finish the book upon our return to Boston. Attending this meeting were Roger Adams, Wim Bartels, Trevor Bowden, Paul Druckman, John Elkington, Jessica Fries, Deborah Gilshan, Alan Knight, Claudia Kruse, Ernst Ligteringen, Alan McGill, Sir Mark Moody Stuart, Pavan Sukhdev, John Swannick, Mike Wallace, and Will Webster, all of whom we want to thank again for taking time out of their busy lives.

The second key meeting was held on August 6, 2009, at the Harvard Business School and we want to thank Marcy Murninghan for getting it organized. Chapter 7 would not exist without this meeting, because it was here that we finally broke through our own “paper paradigm” and realized that the Internet is at the core of integrated reporting. Attending this meeting were Bill Baue, Steve Lydenberg, Caroline Rees, Allen White, and Stone Wiske. We thank them as well for taking the time to help us see the light here.

Like all books, this one went through many drafts, and we benefited from the insights and constructive criticism of a number of people who read earlier drafts of chapters, sometimes several times. Our thanks here go to Peter DeSimone, Sean Gilbert, Bob Herz, Bob Kaplan, Ernst Ligteringen, Marcy Murninghan, Karen Myers, Bob Pozen, Jeff Williams, Mike Willis, and Joe Zhou.

In doing the research for this book, we conducted a large number of interviews. In many cases, these resulted in content for the book, reflected in the quotes it contains. We want to thank all of these people and the organizations they represent for sharing their ideas and making ours better: Mikako Awano, V. Balakrishnan, Mike Barry, Scott Bolick, Helmut Bossert, Luiz Fernando de Araujo Brandao, Matt Christensen, Eric Cohen, Srikant Datar, Jean-Philippe Desmartin, Harris Diamond, Andrea Doane, Philippa Gibson Eccles, James Engell, James Farrar, Marc Fox, Ralf Frank, Michael Fuerst, Leslie Gaines-Ross, Emilio Galli Zugaro, Sean Gilbert, Lois Guthrie, Rodolfo Guttilla, Ivan Herman, Paul Hodgson, Beth Holzman, Carsten Ingerslev, Frank Janssen, Helle Bank Jorgensen, Bob Kaplan, Rakesh Khurana, Michael Kimbrough, Mervyn King, Steve Lewis, Shiro Kondo, Ernst Ligteringen, Jay Lorsch, Mindy Lubber, Christoph Lueneburger, Steve Lydenberg, Bob Massie, Brendan May, Bill McAndrews, James McCarthy, Gunnar Miller, Zenji Miura, Rachael Morgan, John Moran, Mary Morris, Hibachi Moriyama, Filipe Moura, Dorje Mundle, Shima Nakao, Rusty Nelligan, Bob Pozen, Curtis Ravenel, Nick Ridehalgh, Carlos Alberto de Oliveira Roxo, Kiyoshi Sakai, Rick Samans, Thomas Scheiwiller, Volker Seidl, Anne Simpson, Susanne Stormer, Francis Sullivan, Tatsuo Tani, Gary Turkel, Shehei Ura, Klaas van den Berg, Eric von Hippel, Sarah Weber, Allen White, Jon Williams, Mike Willis, Lisa Woll, and Joe Zhou.

The Harvard Business School was an important source of intellectual, moral, and financial support. Robert Eccles would like to thank Dean Jay Light, Senior Associate Dean and Director of Research Srikant Datar, Organizational Behavior Unit Head David Thomas, and Senior Associate Dean for Planning and University Affairs Peter Tufano. In addition, Professors Bharat Anand, Michel Anteby, Lynda Applegate, Joe Badaracco, Julie Battilana, Mike Beer, Roy Chua, Tom DeLong, Alnoor Ebrahim, Amy Edmondson, Tom Eisenmann, Nabil El-Hage, Robin Ely, Ben Esty, Jack Gabarro, Heidi Gardner, Dave Garvin, Ray Gilmartin, Boris Groysberg, Ranjay Gulati, Jan Hammond, Paul Healy, Rebecca Henderson, Linda Hill, Marco Iansiti, Bob Kaplan, Rob Kaplan, Carl Kester, Rakesh Khurana, Rajiv Lal, Paul Lawrence, Deishin Lee, Dutch Leonard, Jay Lorsch, Josh Margolis, Chris Marquis, Warren McFarlan, Kathleen McGinn, Bob Merton, Das Narayandas, Tsedal Neeley, Nitin Nohria, Felix Oberholzer-Gee, Lynn Paine, Krishna Palepu, Andre Perold, Leslie Perlow, Jeff Polzer, Bob Pozen, John Quelch, Kash Rangan, Forest Reinhardt, Clayton Rose, Rick Ruback, Bill Sahlman, Jim Sebenius, Sandra Sucher, David Thomas, Mike Toffel, Norm Wasserman, Julie Wulff, and David Yoffie have all been wonderful colleagues, and he is delighted to be back with them again.

Two accounting firms also provided important financial and intellectual support. PricewaterhouseCoopers (PwC) has been a leader in improving corporate reporting for many years, and Robert Eccles has had the privilege of working with a number of people there, including some as co-authors on previous books. A number of PwC partners and employees were extremely helpful in writing this book. We couldn’t possibly list all of the people at PwC who, in the past and the present, contributed to the ideas in the book, but here we want to acknowledge Eric Cohen, Fred Cohen, Sam DiPiazza, Miles Everson, William Gee, Fred Gertsen, Craig Hamer, Joe Herron, Helle Bank Jorgensen, Arco ten Klooster, Fritz Litjens, Gary Meltzer, Bob Moritz, Rusty Nelligan, Tim Padgett, David Phillips, Malcolm Preston, Bob Rees, Nick Ridehalgh, Thomas Scheiwiller, Alison Thomas, Klaas van den Berg, Jon Williams, Mike Willis, and Nora Wu. Mr. Eccles would also like to personally thank Juan Pujadas for many interesting conversations and for his support and friendship for many years.

Michael Krzus would like to thank his partners and colleagues at Grant Thornton for supporting his work on many initiatives to improve business reporting. In particular, he wants to acknowledge the support of Ed Nusbaum, Stephen Chipman, and Trent Gazzaway during the months spent researching and writing this book. A thank you is also extended to Bridgette Hodges, Gina Kim, Kristen Malinconico, and Susan Jones for their assistance with Chapters 2 and 3. Michael Krzus is especially grateful to Mike Starr for giving him the opportunity and freedom to try to help shape the future of the accounting profession.

Many organizations, listed in Appendix A, contributed to this book. We would like to single out the Global Reporting Initiative, including its founders Bob Massie and Allen White, and current staff including Teresa Fogelberg, Sean Gilbert, Ernst Ligteringen, Leontien Plugge, Randy Thym, Mike Wallace, and Joris Wiemer for help and insights through the book writing process.

Many others helped us with this book, and here we want to thank Eric Baggesen, Viraal Basari, Doug Bannerman, Martin Bennett, Rob Berridge, Laura Berry, Daniel Beunza, Edward Bickham, Susan Blesener, Mike Blumstein, Sheila Bonini, Mark Bromley, Barbara Evans, Frank Curtiss, Judith Czelusniak, Driek Desmet, Robin Edme, Fabrizio Ferraro, Hendrick Garz, Richard Gaul, Robin Giampa, Sara Greene, Antony Henshaw, Bozena Jankowska, Lars Göran Johansson, Anne Kelly, Ellen Kennedy, Matt Kiernan, Peter Knight, Bala Krishnamoorthy, Cary Krosinki, Judy Kuszewski, Lance Lau, Peter Laurent, Christian Lawrence, Rick Love, Ray Madden, Bill McGrew, Tor Mesoy, Bob Monks, Sophia Munoz, Herman Mulder, Jane Nelson, Mohandas Pai, Simon Propper, Anjali Raina, Gargi Ray, David Russell, James Salo, Eliott Saltzman, Judy Sandford, Roland Schatz, Torsten Schuessler, Tim Smith, Peggy Smyth, Richard Spencer, John Stantial, Dan Summerfield, Raj Thamotheram, Folkert van der Molen, Paul Vitello, Claudia Volk, Mark Wade, Lara Warner, Liv Watson, Toby Webb, Richard Wells, Hugh Wheelan, Mike Wing, and David Wood.

Finally, and most importantly, we want to thank our wives, Anne Laurin Eccles and Marilyn Mueller Krzus, for their love, patience, and support while we wrote this book. It has been an intense experience in which we were often mentally absent even when physically present. But now that the book is done, we look forward to spending more time with them and talking about something other than One Report.

Introduction

In September 2009, the time of this writing, the financial market crisis of late 2008 appears to be receding—perhaps too quickly for some important lessons to be learned—although it also appears that the economic recovery will take a much longer time. In an important speech on financial reform, President Barack Obama said, “Unfortunately, there are some in the financial industry who are misreading this moment. Instead of learning the lessons of Lehman and the crisis from which we are recovering, they are choosing to ignore them. They do so not just at their own peril, but at our nation’s.”1 At this same time, the 2009 United Nations Climate Conference, to be held in Copenhagen, is less than three months away, and the general consensus is that this crisis is much bigger than the financial crisis and failure to address it soon will have more than cyclical consequences. Some believe it is already too late and that future generations will bear the cost of our inaction. Again quoting President Obama, “Few challenges facing America—and the world—are more urgent than combating climate change. The science is beyond dispute and the facts are clear.”2 On September 16, 2009, a global group of 181 investment institutions representing assets of $13 trillion issued a statement in support of the Copenhagen meeting and stated that “private capital is essential to achieving the transformation to a low-carbon economy” and observed that “climate risks and opportunities may have significant financial implications for individual companies and may therefore affect the performance of investment portfolios.”3

Exhibit I.1 Increasing Use of the Terms Climate Change and Global Warming, 1989-2008*

*We produced all of our “Increasing Use of the Term” figures using the Dow Jones Factiva database to measure the frequency with which the terms in question were used in all of the publications included in the database.

Evidence of the growing public concern about climate change and global warming is shown in Exhibit I.1. The graphical lines based on simple word counts in a database of news publications show that the mention of these two terms increased exponentially in 2004. James J. McCarthy, professor at Harvard University and former Intergovernmental Panel on Climate Change working group co-chair, noted, “in 2000, the science matured, and it became clear that in a warmer world there will be climate impact on all continents. There are vulnerabilities everywhere, and there will be losers in every country and every region.”4 As the consensus in the scientific community spread into society at large, awareness about climate change started to increase; the slope increased dramatically in 2004, the year of the U.S. presidential election, in which this was a prominent issue. The curve steepened again in 2006, when Al Gore’s film An Inconvenient Truth came out, as did The Stern Review on the Economics of Climate Change, a 700-page report released on October 30, 2006.5

It seems clear that the world is at a crossroads in dealing with these crises and that some fundamental changes will be required to shift course in a meaningful way. The underlying motivation for this book is our belief that more integrated reporting is a key part of the solution. Today, more and more companies are publishing voluntary “Corporate Social Responsibility” or “Sustainability” reports to supplement their annual reports, which contain the financial statements that every listed company must file. In most cases, there is very little linkage between the information published in these separate reports. To have a real impact, these separate reports need to be integrated with each other, thereby demonstrating that the company has a sustainable strategy based on a commitment to corporate social responsibility that is contributing to a sustainable society that takes into account the needs of all stakeholders, of which shareholders are one type. If attention to environmental, social, and governance (ESG) performance is integrated into basic business processes, then what is the logic for producing separate financial and nonfinancial reports?

The reverse logic also holds. One mechanism for creating sustainable strategies for a sustainable society is for companies to commit to more integrated external reporting. As they work to do this, they will locate any gaps in embedding sustainability into the company’s strategy and operations and will be motivated to correct the situation. Climate change, limitations on the availability of water in various forms, diminishing natural resources of many kinds, the need to provide economically viable and meaningful jobs for billions of people, the importance of making the best use of human capital in a knowledge economy, the operational and reputational risk faced by the world’s largest companies in a multistakeholder society, and the elusive goal of providing proper corporate governance to companies on which shareholders and all other stakeholders depend all mean that an excessive focus on short-term financial performance must be replaced by a longer-term view which recognizes that a sustainable company depends upon its contribution to a sustainable society. The central message of this book is that more integrated reporting of financial, environmental, social, and governance performance is essential.

We refer to this more integrated reporting as One Report. This term comes from the fact that a few innovative companies in different countries and industries all over the world have explicitly declared that they are now producing one integrated report. Most of them have only been doing so for the past year or two. We believe we are at a turning point, and that the number will increase very quickly. We also hope that this book will accelerate the trend.

A single document, One Report, is the result of more integrated reporting, which can only happen if sustainability is embedded in a company’s strategy. It is the most effective way of demonstrating internal integration, and it is also a discipline for ensuring that integration exists. Integrated external reporting is impossible without integrated internal management. One Report is both a tool and a symbolic representation of a company’s commitment to sustainability.

It is also much more than that. It is about moving from a periodic static document to ongoing reporting about the company’s financial and nonfinancial successes and failures. This shift enables dialogue and engagement that involves listening as well as talking. Dialogue and engagement are vastly enabled by the Internet, today’s Web 2.0 tools and technologies, and tomorrow’s Web 3.0—the “semantic Web.” One Report is about a collective conversation between companies acting as corporate citizens; analysts and investors; standards setters and regulators; and civil society, as represented by NGOs (nongovernmental organizations), associations of many kinds, and individual citizens. Through integrated reporting, we hope that the bright line sometimes drawn between shareholders and other stakeholders will blur, and that all stakeholders will adopt a more holistic perspective. One Report alone cannot make this happen, but we believe it can play a catalytic role.

One Report is about greater transparency; thus, we should be transparent about our intentions. The authors are actors in, as well as analysts of, the corporate reporting scene today. Eccles’s interest in this topic goes back to the late 1980s, directly after getting tenure at the Harvard Business School and beginning a research program on improving corporate reporting. Since then he has been involved in a number of private and public initiatives to make this happen. Krzus’s involvement goes back to his appointment as Executive Director of the American Institute of Certified Public Accountants Special Committee on Enhanced Business Reporting in December 2002.

In writing this book, one thing that has become painfully clear to us is the ambiguity of language. We could have not written this book without using terms such as corporate social responsibility, ESG metrics, intangible assets, intellectual capital, key performance indicators, nonfinancial information, stakeholders, sustainable development, sustainability, and civil society. We are aware that these terms mean different things to different people and that, in some cases, the terms themselves may be disagreeable to some readers. We are not trying to resolve this linguistic dispute. All we can and will do is be explicit about our own definitions of these words.

Another disclaimer is in order. This book is about the contribution integrated reporting can make to sustainable company strategies that contribute to a sustainable society. Here we will be discussing companies that are practicing One Report to show that it can be and is being done, and why and how. Much of our information comes from public sources. In some cases, we have had the privilege of talking to people at the companies themselves; this includes some companies that are not doing One Report, but that are doing things in the spirit of integrated reporting and stakeholder dialogue and engagement. We are deeply grateful to all of these individuals and their companies for their contribution to this book.

At the same time, the inclusion of any company in this book is not an endorsement of the businesses they are in, the strategies they are pursuing, or the degree to which sustainability is embedded into their operations. We simply do not have the necessary data or expertise to make this judgment. We are also very aware that every single company in this book has its detractors. The extent to which each of these companies is engaged with its stakeholders to address these issues varies, but such engagement is a critical aspect of One Report. Finally, we obviously have no idea what the future bears for any of the companies discussed here. Some may prosper for decades. Some may fail in the near future for reasons we cannot foresee. Should this happen, there certainly will and should be a debate about the quality of their external reporting, including the strengths and weaknesses of their One Report.

In writing this book, we have had a number of conversations with individuals and organizations who are committed to improving corporate reporting and, specifically, to emphasizing more integrated reporting. This includes academics, analysts and investors, executives, regulators and standards setters, and members of civil society, such as NGOs and associations of various kinds. Out of these conversations have come various initiatives, such as the one described in Chapter 1, that we hope will move this agenda forward. There are also important initiatives taking place in which we have no part at this time but may in the future. Seen in this context, our book is a means to an end, not an end in itself. One Report by itself will not ensure that companies have sustainable strategies that contribute to a sustainable society, but we strongly believe that it can play an important role.

Here we make a personal commitment to provide our own support to the rapid and broad adoption of high-quality integrated reporting. At the encouragement of governmental representatives from nine countries, we are creating the Web site www.integratedreporting.org. It will be a platform on which dialogue, engagement, sharing, and learning can take place. We invite companies and governments to provide information on what they are doing and links to their Web sites, including their One Reports, so that we can learn from each other. We invite all members of every company’s integrated reporting community of stakeholders to comment on these efforts and make suggestions for improvements. We invite everyone to provide ideas, reflections, suggestions for readings, sources of information, frameworks, and Web-based applications of many kinds, including those for developing a better understanding about the relationship between financial and nonfinancial performance. We will be actively engaged on this Web site and happy to talk in more old-fashioned ways as well.

We have tried to make this book a reasonably comprehensive treatment of the topic without becoming excessively long. It is organized into eight chapters. Chapter 1 explains further what we mean by One Report and gives two good examples of companies that are practicing it: the Danish pharmaceutical company Novo Nordisk and the Brazilian cosmetics and fragrances company Natura. Chapter 2 looks at a U.S. company, United Technologies Corporation, that issued One Report for the first time in 2008 and describes this report in the context of the history of 50 years of corporate reporting at the company. Chapter 3 reviews the state of financial reporting today; Chapter 4 does the same for nonfinancial reporting. The reader who is familiar with these subjects can skim or skip these chapters. Chapter 5 provides the foundation argument for integrated reporting in the context of the convergence of corporate social responsibility, sustainable development, and competitive advantage. In Chapter 6, we make the case for One Report by explaining why it is in a company’s best interest to practice more integrated reporting, providing evidence for why we think this is a trend about to take off, and addressing objections that can be made to One Report. As already noted, although One Report as a paper document is symbolically important, true integrated reporting is about much more than this. It involves leveraging the Internet and Web 2.0 tools and technologies to provide integrated reporting on a more continuous basis and to engage in dialogue and engagement with all stakeholders. We explain this in Chapter 7. In Chapter 8, we present the elements of an action plan for rapid and broad adoption of integrated reporting in the interest of ensuring a sustainable society. All of us have a stake in this. All of us have a stake in integrated reporting and One Report.

Notes

1 “Text of Obama’s Speech on Financial Reform,” New York Times Online, September 14, 2009. www.nytimes.com/2009/09/15/business/15obamatext. html, accessed September 2009.

2 Revkin, Andrew C. “Obama: Climate Plan Firm Amid Economic Woes,” November 18, 2008, post on blog “Dot Earth, New York Times,” http://dotearth.blogs.nytimes.com/2008/11/18/obama-climate-message-amid-economic-woes/, accessed September 2009.

3 “2009 Investor Statement on the Urgent Need for a Global Agreement on Climate Change,” www.ceres.org/Document.Doc?id=495, accessed September 2009.

4 James McCarthy, interview with Robert Eccles and Susan Thyne, August 5, 2009.

5 HM Treasury. “Publication of the Stern Review on the Economics of Climate Change,” October 20, 2006, press release, www.hm-treasury.gov.uk/press_stern_06.htm, accessed October 2009.

Chapter 1

What Is One Report?

On September 11, 2009, the authors participated in a meeting at St. James’s Palace in London to discuss how best to achieve the integration of financial and nonfinancial reporting and to provide the authors with some comments on the ideas expressed in this book. The meeting brought together organizations with a range of different perspectives, including investors, standards setters, companies, accounting bodies, UN representatives, and members of civil society.1 One output of this meeting was the agreement that an appropriate international body should initiate a process with the organizations that have the relevant expertise and recognition in the area of transparency, accounting, and reporting internationally to consider the development of an integrated sustainability and financial reporting framework as a critical step toward realizing a sustainable economy. It was agreed that now is the time to have the same level of coordinated international response as occurred with the financial crisis to the environmental crisis, which poses a far higher level of systemic risk to the global economy. Many G-20 leaders have recognized the threats posed to our society and prosperity by climate change, depletion of finite natural resources, and related issues and are starting to take action.

Current financial and sustainability reporting systems do not provide the necessary information to address these environmental or societal challenges. Bringing together those organizations that have responsibility for financial accounting and reporting with those that are widely recognized as leaders in nonfinancial accounting and reporting would make possible the establishment of the process, the governance structure and the guidelines under which an appropriate framework could be developed.

The Meaning of One Report

At the St. James’s Palace meeting, there was a robust discussion about the idea and meaning of One Report, including the challenges in implementing integrated reporting at the company level and in gaining broad adoption for it at the public policy level. We were challenged to explain exactly what is meant by the term One Report. In its simplest terms, One Report means producing a single report that combines the financial and narrative information found in a company’s annual report with the nonfinancial (such as on environmental, social, and governance issues) and narrative information found in a company’s “Corporate Social Responsibility” or “Sustainability” report. But the integration of financial and nonfinancial reporting is about much more than simply issuing a combined paper document. It involves using the Internet to provide integrated reporting in ways that cannot be done on paper, such as through analytical tools that enable the user to do his or her own analysis of financial and nonfinancial information. It also involves providing information that is of particular interest to different stakeholders.

One Report doesn’t mean Only One Report. It simply means that there should be one report that integrates the company’s key financial and nonfinancial information. It by no means precludes the company from providing other information in many different ways that are targeted to specific users. Rather, One Report provides a conceptual platform that is supplemented by the technology platform of the company’s Web site, from which much more detailed data can and should be provided to meet the information needs of a company’s many stakeholders. Thus, One Report has two meanings. The first and most narrow meaning is a single document, either in paper or perhaps electronically provided as a PDF file. The narrow meaning of One Report should not be lightly dismissed. It is a way of communicating to all stakeholders that the company is taking a holistic view of their interests, both as they complement each other and as they compete against each other. This broader stakeholder view, discussed in more detail in Chapter 5, is variously called “corporate social responsibility,” “sustainability,” and “corporate citizenship.”2

The second and broader meaning is reporting financial and nonfinancial information in such a way that shows their impact on each other. Here companies can leverage the capabilities of the Internet and its Web 2.0 tools and technologies. Clearly, the degree of integration can vary enormously, so One Report is not simply the decision to provide such a report but also a journey in which a company commits to a path of continuous improvement in the degree of integration in its external reporting. The Danish biotechnology company Novozymes is the first company we are aware of to produce One Report, starting in 2002, and the company also makes effective use of the Internet to provide more detailed information than what is in its integrated annual report.3

Novo Nordisk: An Early Adopter of One Report

A good example of One Report, illustrating both its broad and narrow meanings, can be found in the Danish healthcare company Novo Nordisk, a world leader in diabetes care. Its Annual Report 2008: Financial, social and environmental performance is the company’s fifth year of providing “one, inclusive document” and is a representation of its efforts to “drive integration of the financial and non-financial perspectives to business and [the ways it] seeks to reflect this in the approach to reporting.”4 This relatively long history of integrated reporting (the evolution of its corporate reporting is profiled in Exhibit 1.1) makes Novo Nordisk one of the earliest adopters of One Report, and its robust supplemental Web site explains the benefit of integrated information: “in combining the accounts for the company’s financial and non-financial assets, the objective is to enhance stakeholders’ evaluation of the company.”5

Exhibit 1.1 Evolution of Corporate Reporting at Novo Nordisk

SOURCE: Novo Nordisk, “Novo Nordisk Reporting History,” http://annualreport2008.novonordisk. com/images/how-we-are-accountable/PDF/history.pdf, accessed September 2009.

In presenting integrated information, Novo Nordisk not only establishes the connection between its sustainable business practices (grounded in the Triple Bottom Line approach6) and its financial performance, but also connects the reporting of financial and nonfinancial data by the stringency of approach. Financial reporting is heavily regulated, and the company’s reporting is based on International Financial Reporting Standards (IFRS). While standards for nonfinancial reporting are not yet widely established, due in part to the voluntary nature of reporting, Novo Nordisk reports its data using the Global Reporting Initiative’s (GRI) G3 Sustainability Reporting Guidelines (explained more fully in Chapter 4). In clearly expressing its use of these guidelines, Novo Nordisk projects its commitment to being a company with sustainability in mind.

Furthermore, the company’s required audit of its annual report was conducted by PricewaterhouseCoopers (PwC), which also provided assurance on its reported nonfinancial performance.7 The audit of the annual report is primarily focused on financial information but also includes some nonfinancial information; the assurance, although not required, is focused on the nonfinancial reporting.