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The Financial Benefits of Integrated Reporting

Question: Does integrated reporting yield direct \r\nfinancial benefits?

Robert Eccles: The \r\nblunt answer is no. There’s maybe 15 to 20 companies that have started \r\ndoing this, they’ve done it for a year or two and a few cases has been 5\r\n or 6, so the database is much too small that you could do the type of \r\nanalysis that a financial economist would do to be able to link \r\nintegrated reported to superior shareholder return.  If you talk to \r\npeople in the companies and you say, “What do you think the benefits are\r\n that you receive from doing integrated reporting?”  They will say it \r\nhas certainly improved internal coordination, it has certainly made \r\nsustainability more real in terms of it’s a core part of the strategy, \r\nit’s embedded in operations.  They would say it has improved the \r\nunderstanding that the stakeholder community has of the company and the \r\nrelationship between financial and non-financial performance.  But to be\r\n fair, they would say that the shareholder community is still struggling\r\n to understand this other kind of information.  My response to that \r\nwould be it’s a necessary, educational process that companies need to go\r\n through with their shareholders.

So at this \r\npoint in time, the benefits the companies would explain are primarily \r\ninternal, but I do believe over time, and clearly these companies \r\nbelieve over time, that this will lead to a superior, long term \r\nperformance.

The issue of timeframe is \r\nimportant, because integrated reporting, the title of my book is One \r\nReport:  Integrated Reporting for a Sustainable Strategy, it’s really \r\nabout the long term.  So companies have to take the long term, \r\nshareholders have to take the long term, investors who are short-term \r\noriented, hedge funds, technical trading programs, a lot of hedge funds,\r\n probably aren’t going to be interested. That’s not the shareholder \r\ncommunity that companies that are producing an integrated report are \r\ntrying to appeal to.  Personally, I think that’s part of the problem \r\nwith our capital markets today, I think it’s one of the reasons that we \r\nhad the recent financial crises, was this short-term shareholder-only \r\noriented mentality.  Integrated reporting is a way of taking a broader \r\nstakeholder view, of rethinking the role of corporations in society, and\r\n stretching out the timeframes under which both companies and investors \r\nmake their decisions.

Recorded\r\n on April 19, 2010

The short term internal benefits of integrated reporting will eventually lead to a companies superior performance.

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Photo: Luis Robayo/AFP via Getty Images
Sponsored by Charles Koch Foundation
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