The big idea: The memorable quote “What we got here is failure to communicate” from the prison guard captain in the classic movie “Cool Hand Luke” is certainly applicable to the challenge facing corporations around the world with respect to their ability to communicate their value and values to key stakeholders in a relevant, comprehensive, transparent, timely and credible manner.
The scenario: The predominantly historical cost-based generally accepted financial reporting framework was developed when the business world was much less complex. Today, many corporations do business globally; services have grown in importance relative to manufacturing; and the importance of intangible assets has risen dramatically. Over the past 20 years, the corporate communication challenge has become even greater because of the growth in the number of companies embracing corporate sustainability practices, acknowledging that there are multiple important corporate stakeholders and recognizing that reporting corporate performance through the traditional financial bottom line is no longer sufficient. Over a relatively short time, concerns over global warming, human rights, resource depletion, rising population, environmental degradation and waste disposal, among many others, have resulted in a dramatic and quick response by business leaders who see embracing sustainability as a means of improving operational excellence and sparking innovation.
To communicate their initiatives, companies began issuing sustainability reports with their annual reports. As this became more common, the need for a generally accepted reporting framework became apparent. In 1997, Ceres, a Boston-based nonprofit organization, began the “Global Reporting Initiative.” Two years later, the U.N. Environment Program partnered with Ceres. In 2000, the initial GRI Sustainability Reporting Guidelines were released, and about 50 companies issued reports based on them. In 2001, the GRI became an independent organization and relocated to the Netherlands.
The resolution: Corporate sustainability reporting has become mainstream. The question is no longer about the availability of information; it is about its form and content. The tipping point was in December 2009 when the Britain’s Prince Charles called for the establishment of an International Integrated Reporting Committee to oversee the development of an internationally connected and integrated approach to corporate reporting. The IIRC consists of powerful leaders from the corporate, investment, accounting, securities, regulatory, academic and standard-setting sectors as well as civil society.
The lesson: The role that business plays in the health and well-being of people and the planet has become increasingly apparent. The long-term goal of business leaders should be regeneration and resilience in addition to growth and profitability. The integrated reporting framework allows for the comprehensive presentation of financial, environmental, social and governance information by companies that can provide all stakeholders with a better understanding of true performance. New measurements and metrics will enhance decision making throughout the supply chain and by consumers. What we have here is an opportunity to communicate.
— Richard Brownlee
Brownlee is Dale S. Coenen Professor of Business Administration at the University of Virginia Darden School of Business.