Business and the Environment Initiative

The development of corporate integrated reporting (IR) standards has the promise to be one of the great business innovations of the 21st century, and could be pivotal in restoring public trust in business institutions, Harvard Business School Dean Nitin Nohria told a seminal gathering of IR key stakeholders at an HBS workshop last week.

Integrated reports combine a company’s financial, environmental, social, and governance performance measures into a report that can be presented and used both online and on paper, giving stakeholders a transparent, past/present/future view into how the institution is living up to its commitments in each area. Still in its infancy, integrated reporting has been adopted by a few dozen companies including AEP, BASF, Novartis, Novo Nordisk, Philips, Southwest Airlines, and United Technologies.

“Integrated reporting is one effort to start to restore the trust we have lost with society,” Nohria told some 100 attendees. “It is an extraordinarily promising idea . as important a topic as we have at this time.”

The workshop, the first conference sponsored by HBS’s new Business and the Environment initiative, was the largest gathering of financial and accounting professionals, regulators, corporate executives, educators, fund managers and environmental sustainability advocates around the topic, according to the organizer, HBS professor Robert G. Eccles.

Eccles, a pioneer in the field, wrote the first book on integrated reporting, “One Report: Integrated Reporting for a Sustainable Strategy”.

Several key questions arose during the workshop:

To what degree should new reporting standards be melded into the existing corporate accounting model? Many participants called the existing financial reporting model broken, and not to be emulated.

How can organizations ensure that the reports are more than simply separate filings paper-clipped together, but rather that the financial and non-financial data interrelate with each other to tell a unified story?

To what degree should the reports be mandated and enforced by government?
Should changes be brought about slowly–one model shows an adoption curve ending in 2020–or with more of a big-bang approach? There appeared to be general agreement that the time for action is now. “I believe that every participant left the workshop with this sense of responsibility to get things rolling,” said workshop co-organizer Beiting Cheng, an HBS doctoral student.

Short of government mandates, how can corporations be motivated to adopt integrated reporting? Will shareholders be a driving force? What about outside agencies such as NGOs? Can CEOs and boards be persuaded to act in their own self-interest? Supporters say integrated reporting brings benefits to companies, including better risk management, development of strategies for long-term sustainability, and positioning of the company as a leader and innovator.

Which stakeholders are most important to target to create momentum for adoption? Investors? Regulators? Or is this, as Eccles said, “a giant collective-action problem-no one group can change it.”

What metrics would be most useful and actionable to regulators, stakeholders, and the companies themselves?

What capabilities need to be developed by accounting firms to deliver a truly integrated audit?

One of the key new themes that emerged at the workshop was the role technology could play in gathering, organizing, and analyzing IR data.

“Technologies not traditionally associated with corporate reporting, like sensor technology and cloud computing, can make a major contribution in the production of information by companies and its use by investors and other stakeholders,” Eccles said after the conference. “The question is more one of will and commitment rather than technical feasibility.”

MBA student and conference co-organizer Daniela Saltzman said that the workshop demonstrated that integrated reporting is gaining momentum.

“Business schools worldwide continue to evolve, moving away from the traditional singular focus on the financial bottom line, and allowing the concept of sustainability to permeate into the classroom and across the campus. Similarly, we must recognize that current reporting practices are antiquated, and the time for a new, sustainable framework has arrived.”

The workshop included a discussion of the HBS case study, Southwest Airlines One Report and a conversation with one of the case’s protagonists, Communication Manager Marilee McInnis.

Participants were invited to help create an e-book, “2010 Integrated Reporting Workshop Remarks”, which will be co-edited by Eccles, Cheng, and Saltzman. The e-book will be posted on HBS Working Knowledge when available.

The School’s Baker Library | Bloomberg Center has one of the most comprehensive collections of corporate reports worldwide, including original company documents from as far back as 1820. The Knowledge & Library Services organization is also documenting the integrated reporting movement.

The workshop was held October 14 and 15.

October 25, 2010
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