The Landscape of Integrated Reporting: Reflections and Next Steps

Edited by Robert G. Eccles, Beiting Cheng and Daniela Saltzman

Copyright 2010 The President and Fellows of Harvard College

Cambridge, Massachusetts, 02138

Smashwords Edition, License Notes

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Table of Contents

Foreword
Nitin Nohria

Introduction: The State of Integrated Reporting Today
Robert G. Eccles

Part I: The Role of the Corporation in Society

Accounting and Accountability:Integrated Reporting and the Purpose of the Firm
Robert Kinloch Massie

A CEO’s Letter to Her Board of Directors
John Fullerton and Susan Arterian Chang

Drivers of Corporate Sustainability and Implications for Capital Markets: An International Perspective
Ioannis Ioannou and George Serafeim

Growth, Stuff and a Guinea Pig: Inspired Thoughts from Two Days at Harvard Business School
Terence L. Jeyaretnam

Integrated Reporting in a Disconnected World? The Macro Measurement Challenge!
Alan Willis

What Should Be Done with Integrated Reporting?
David Wood

Part II: The Concept of Integrated Reporting

The Five Capitals of Integrated Reporting: Toward a Holistic Architecture for Corporate Disclosure
Allen L. White

Integrated Reporting: A Perspective from Net Balance
Terence L. Jeyaretnam and Kate Niblock-Siddle

Think Different
Alan Knight

ISO Standards for Business and Their Linkage to Integrated Reporting
Kevin McKinley

Toward a Model for Sustainable Capital Allocation
Adam Kanzer

Learning from BP's "Sustainable" Self-Portraits: From "Integrated Spin" to Integrated Reporting
Sanford Lewis

Will Integrated Reporting Make Sustainability Reporting Obsolete?
Ernst Ligteringen and Nelmara Arbex

Part III: Benefits to Companies

Integrating Integrated Reporting
Steve Rochlin and Ben Grant

Integrated Reporting: The Future of Corporate Reporting?
Paul Druckman and Jessica Fries

Integrated Reporting Contributes to Embedding Sustainability in Core Business Activities
Olaf Brugman

Six Reasons Why CFOs Should Be Interested in Sustainability
Simon Braaksma

Sasol’s Reporting Journey
Stiaan Wandrag and Jonathon Hanks

One Report; One Message to All Our Stakeholders
Frank Janssen

Southwest Airlines One Report(TM) Review
Aram Hong

Integrated Reporting: Managing Corporate Reputation to Thrive in the New Economy
Hampton Bridwell

A Team like No Other – Who Will Own Your Integrated Report?
Christoph Lueneburger

Will the USA Take a Leap? Barriers to Integrated Reporting
Mike Wallace

Integrated Reporting in a Competitive World of Cities
Jen Petersen

Part IV: The Investor’s Perspective

Some Thoughts on Integrated Reporting and Its Possibilities
Farha-Joyce Haboucha

Integrated Reporting: What’s Faith Got to Do with It?
Laura Berry

An SRI Perspective on Integrated Reporting
Peter DeSimone

Towards a 21st Century Balance Sheet: The First Three Steps
Toby A.A. Heaps

Part V: The Importance of Auditing

Does an Integrated Report Require an Integrated Audit?
Bruce McCuaig

One Audit—Moving towards 21st Century Integrated Assurance
Nick Ridehalgh

Auditors at the Crossroads
Keith L. Johnson

Sustainability Reporting – Can It Evolve Without Assurance? The Audit Profession Can Help to Build an Assurance Model
Cindy Fornelli

Part VI: Leveraging Technology

The Role of XBRL and IFRS in Integrated Reporting
Maciej Piechocki and Olivier Servais

Bringing Order to the Chaos: Integrating Sustainability Reporting Frameworks and Financial Reporting into One Report with XBRL
Liv A. Watson and Brad J. Monterio

Sustainable Investing and Integrated Reporting: Driving Systematic Behavioral Change in Public Companies through Global Sustainability Rankings, Indexes, Portfolio Screening and Social Media
Michael Muyot

Integrated Reporting Enablement
Richard L. Gristak

Leveraging the Internet for Integrated Reporting
Kyle Armbrester

Part VII: Better Engagement

The Business Imperative of Stakeholder Engagement
Sandy Nessing

Integrated Reporting as a View into Integrated Sustainable Strategies
Scott Bolick

Integrated Reporting and the Collaborative Community: Creating Trust through the Collective Conversation
Kathleen Miller Perkins

Online Co-Creation Communities: A New Framework for Engagement
Denis Riney

Employee Engagement and the Holy Grail
Kathy Miller Perkins

Engagement as True Conversation
Kate Parrot

Part VIII: Perspectives on an Action Strategy

Tomorrow’s Corporate Reporting
Patricia Cleverly, David Phillips, and Charles Tilley

Push, Nudge, or Take Control –An Integrated Approach to Integrated Reporting
Shelley Xin Li

Integrated Reporting: Long-Term Thinking to Drive Long-Term Performance
Mindy Lubber and Andrea Moffat

Integrated Reporting: Now What?
Michael P. Krzus

Transformative Innovation towards Integrated Reporting Passes through a Hands-on/Transition Phase and Leads to Real Innovation in Management
Livia Piermattei

Two Worlds Collide – One World to Emerge!
Ralph Thurm

Success Factors for Integrated Reporting: A Technical Perspective
Ralf Frank

Part IX: Action Strategy Tactics

Integrated Reporting: Impact of Small Issuer Challenges on Framework Development and Implementation Strategies
Lisa French

Beware of Greeks Bearing Gifts
Partha Bose

The Role of Lawyers in Integrated Reporting
Galit A. Sarfaty

The Role of Stock Exchanges in Expediting Global Adoption of Integrated Reporting
Christina Zimmermann

Integrated Reporting and Key Performance Indicators
Steve Lydenberg and Jean Rogers

Developing Key Performance Indicators to Support Integrated Reporting
Yoshiko Shibasaka

Part X: Lessons from Experience

Some Thoughts on Advancing the Vision and Reality of International Integrated Reporting
Robert H. Herz

The French Grenelle II Act: Enacting Integrated Reporting and Further Developments
Patrick d’Humières and Nicolas Jandot

Sustainability Reporting: Where Does Australia Stand?
Terence L. Jeyaretnam and Kate Niblock-Siddle

Integrated Annual Report Survey - New Zealand’s Top 200 Companies: Exploring Responses from Chief Financial Officers on Emerging Reporting Issues
Wendy McGuinness and Nicola Bradshaw

The Climate Disclosure Standards Board –Setting a Standard for Realism and Resilience
Lois Guthrie

CDP’s Lessons from Ten Years of Climate Disclosure
Nigel Topping

Part XI: Final Reflections

Integrated Reporting and the MBA Education
Daniela Saltzman

A Proposed Research Agenda on Integrated Reporting
Beiting Cheng

Foreword (1)

Nitin Nohria, Dean

Harvard Business School

The following are selected excerpts from Dean Nitin Nohria’s opening remarks to participants in Harvard Business School’s inaugural Workshop on Integrated Reporting.

I am truly excited to have this opportunity to begin a conversation with all of you on the important topic of integrated reporting. As the dean of Harvard Business School, I find it a matter of great concern that society has lost so much trust in business. We live in a time in which business leaders are often trusted even less than politicians. It is something that I think each and every one of us should pay serious attention to.

I believe business contributes to the prosperity of humanity, and is more important to the continued prosperity of humanity than any other institution. Therefore, we must question what got us collectively to a place where society has lost that level of lost trust in business.

Whether it be the environment, healthcare, or making sure that people have access to information, I can't think of any major problem that society confronts today that can be effectively solved unless business plays an important part. And yet we find ourselves in a moment where this trust has been badly damaged. We’ve reached a place that feels like a vicious cycle, where nothing progressive is going to happen. Somehow, we have to turn this cycle in the other direction, and restore business to a place where it is experienced as an honorable calling, and a thing that can make great progress in society.

How can we get started down this path? One way is to introduce progressive ideas and practices that demonstrate to the world we care about more than profits. It's not that profits aren't important; no business survives without making profits. But that goal isn't incompatible with other societal priorities.

I think of integrated reporting as one of these progressive ideas and efforts that can begin to restore society’s trust. If we start in various ways reporting back to society that we care, these reports can demonstrate we're as serious about holding ourselves accountable to and measuring our progress on a wide variety of things that matter most to people.

My understanding of the present state of integrated reporting is that many companies are producing reports, yet each is done in its own way without any clear sense of a top-down standard. This is a matter of concern to some, but I would argue that rather than be anxious about it, we should celebrate it and allow a lot of these ideas to bubble up. With some oversight form a coordinating body—of which I know there are a few that have been created now—we can begin to see a pattern and some best practices emerge, possibly inspiring others to take up the charge. Hopefully out of that bottoms-up process some standards will emerge more spontaneously than they would from the top-down.

What excites me so much about this idea is that it has yet to fully take hold. It's always important to be in the midst of emerging ideas and to provide support and momentum for ideas that are a little ahead of their time. By being at the leading edge of the movement, we can have real influence, bringing not just management thinking and theory but management practice and perspective.

This process might take some time, so I urge you to be patient with yourselves. This is not just for the sake of business that you’re here, but also for the sake of society. I believe deeply that business is an engine for prosperity in society. Most of the challenges that society faces, business must address. By taking on this integrated reporting initiative, business can show its commitment in that direction and in the process restore society’s confidence and trust. Perhaps that will return us to a productive cycle in which business and society have a positive relationship.

Nitin Nohria became the tenth dean of Harvard Business School in July of 2010. He previously served as co-chair of the Leadership Initiative, Senior Associate Dean of Faculty Development, and Head of the Organizational Behavior unit. His intellectual interests center on human motivation, leadership, corporate transformation and accountability, and sustainable economic and human performance.

Endnote: (1) This foreword is an edited and abbreviated version of Nitin Nohria’s opening remarks at A Workshop on Integrated Reporting on October 14, 2010.

Introduction:

The State of Integrated Reporting Today

Robert G. Eccles

On October 14-15, 2010, “A Workshop on Integrated Reporting: Frameworks and Action Plan” was held at the Harvard Business School. The workshop was sponsored by the Business & Environment Initiative led by Professors Rebecca Henderson and Forest Reinhardt. Professor Robert G. Eccles was the workshop chairman. Dean Nitin Nohria made the opening remarks, a summary of which form the Foreword of this book.

For two days, over 100 of the world’s leading authorities on corporate disclosure discussed the concept of integrated reporting (sometimes referred to as One Report), what its contribution could be to creating a more sustainable society, and what must be done to ensure its rapid and broad adoption in a high quality way (1). The workshop participants included people from a wide range of countries and representing virtually every group that has a stake in integrated reporting and can help to make it happen: companies, analysts and investors, NGOs, regulators and standard setters, accounting firms, technology and data vendors, academics, students, and civil society. A free Executive Summary of the workshop is available.

In order to more fully capture the insights and wisdom of the workshop participants, the Harvard Business School decided to publish a free “EBook.” Everyone who attended the workshop was invited to write a contribution for the book. The response was overwhelming in terms of both quantity (64 pieces totaling some 110,000 words) and, more importantly, quality. The editors believe that this book nicely captures the current state of integrated reporting in the world, highlights the critical issues that must be addressed to ensure its rapid and broad adoption, and contains many good suggestions for an effective action strategy to make this happen. We see this book as establishing a baseline from which we can evaluate the progress of the integrated reporting social movement over time.

The book is organized into 11 parts. Part I, “The Role of the Corporation in Society,” addresses the fundamental question of “For what purpose does a corporation exist?” Is it to maximize value for shareholders, regardless of its impact on other stakeholders and the environment? Or is its purpose to represent all of society’s stakeholders in as balanced a manner as possible? If the latter, does meeting the needs of other stakeholders contribute to value creation for shareholders, and over what time frame, or are tradeoffs inevitable? In a very real sense, the question of the role of corporations in society and the content and practice of integrated reporting are inseparable. A company’s reporting practices are a representation of how it sees itself and, in turn, they shape what it will become. Rethinking the role of the modern corporation and developing integrated reporting frameworks and practices will reinforce each other.

In the first chapter of Part I, “Accounting and Accountability: Integrated Reporting and the Purpose of the Firm,” Massie argues that true integrated reporting will require an integrated theory that reconciles the shareholder and stakeholder models of the firm. Fullerton and Arterian Chang’s hypothetical “A CEO’s Letter to Her Board of Directors” illustrates the challenges a company faces in attempting to adopt such an integrated theory for implementing integrated reporting. Ioannou and Serafeim, writing “Drivers of Corporate Sustainability and Implications for Capital Markets: An International Perspective,” summarize their recent research on the role institutional forces play in causing companies to adopt sustainable business practices and how the market reacts to those who do. Jeyaretnam, in “Growth, Stuff and a Guinea Pig: Inspired Thoughts from Two Days at Harvard Business School,” raises the provocative question of whether greater value for society is best obtained by shifting to a slow or no growth perspective. Along this same theme is Willis’s “Integrated Reporting in a Disconnected World? The Macro Measurement Challenge!,” drawing a parallel between financial reporting by companies and measures of Gross Domestic Product by countries that do not take account of externalities created by growth in GDP to argue for the importance of the IIRC. In the final chapter, “What Should Be Done With Integrated Reporting,” Wood argues that in order for integrated reporting to have its desired impact in changing decisions by companies and investors, all stakeholder groups need to act on the information they are getting—thereby helping to bring about the more integrated theory of the firm called for by Massie.

Integrated reporting is an embryonic management practice whose meaning is not yet well defined. As yet, no institutionally recognized framework exists, although the International Integrated Reporting Committee (IIRC) is working on developing the first draft of one. Similarly, there is no global set of standards for measuring and reporting on nonfinancial (e.g., environmental, social and governance) performance although important work has been done here by the Global Reporting Initiative through its “G3 Guidelines” and the work of the Carbon Disclosure Project and the Climate Disclosure Standards Board in creating a “Climate Change Reporting Framework.” Thus the concept and practice of integrated reporting is very much a work in progress.

Part II, “The Concept of Integrated Reporting,” contains seven thoughtful chapters which contribute to our understanding of just what integrated reporting means. In “The Five Capitals of Integrated Reporting: Toward a Holistic Architecture for Corporate Disclosure,” White offers the idea of “capital stewardship” as the foundation for fusing the distinctly different characteristics of financial and nonfinancial reporting. Jeyaretnam and Niblock-Siddle emphasize in “Integrated Reporting: A Perspective from Net Balance” that integrated reporting requires the integration of sustainability into the company’s business strategy; they also point out that “One Report” can and should be supplemented with targeted communications to different stakeholders using the company’s website. In “Think Different,” Knight cautions against the risk of the IIRC losing its “nerve and ambition” and explores five issues that need to be addressed in order to ensure the promise of integrated reporting. One of the great challenges in implementing integrated reporting is developing standards for nonfinancial information; McKinley’s “ISO Standards for Business and Their Linkage to Integrated Reporting” provides insights into how this can be done based on the experience of the International Standards Organization and explains the contribution of ISO 26000 “Guidance on social responsibility” to integrated reporting. As with standards, another key issue for integrated reporting is the definition of materiality and Kanzer, “Toward a Model for Sustainable Capital Allocation,” frames the issue by asking the question of “Material to whom?” Using the example of BP’s Deepwater Horizon oil spill disaster, in “Learning from BP’s ‘Sustainable’ Self-Portrait: From ‘Integrated Spin’ to Integrated Reporting,” Lewis explains how integrated reporting must overcome weaknesses in both financial and sustainability reporting in order for an integrated report to provide reliable and credible information rather than being “a mere marketing tool.” Ligteringen and Arbex discuss how the GRI’s next generation of G4 Guidelines will contribute to integrated reporting by making “ESG reporting more mainstream.”

With the exception of South Africa and, in a certain way France, implementing integrated reporting is a completely voluntary exercise by companies. To the extent that companies see real advantages in doing so, they will adopt this practice on their own volition, as a few companies have already done and more are doing. Thus making the case for integrated reporting from the company perspective is very important in order to bring the power of market forces to bear on spreading its adoption. Part III, “Benefits to Companies,” contains 10 chapters that provide strong evidence based on companies’ actual experience and some persuasive logical arguments for the benefits companies will receive from integrated reporting:

-“Integrating Integrated Reporting” (Rochlin and Grant) argues that integrated reporting can be a vital driver of organizational change towards “Responsible Competitiveness” which “is the enterprise-wide approach to managing environmental, social, economic, and governance issues.”
-“Integrated Reporting: The Future of Corporate Reporting?” (Druckman and Fries) provides insights based on research conducted by The Prince’s Accounting for Sustainability Project; it also discusses the mission and some key milestones of the IIRC.
-“Integrated Reporting Contributes to Embedding Sustainability in Core Business Processes” (Brugman) describes the benefits to Rabobank, including “an internal redefinition of what is material to us” and the “internal embedding of sustainability in core business processes” which “will allow for a fairer and more balanced evaluation of our business activities.”
-“Six Reasons Why CFOs Should Be Interested in Sustainability” (Braaksma) describes the benefits Philips has already received from integrated reporting and identifies three areas targeted for improvement: improved engagement by feedback loops, improved workflow management, and providing reasonable assurance.
-“Sasol’s Reporting Journey” (Wandrag and Hanks) is a longitudinal analysis of Sasol’s evolving corporate reporting practices since 2002 and the benefits it has achieved, such as “improving our internal management and reporting systems.”
-“One Report; One Message to All Our Stakeholders” (Janssen) explains that this private company has benefited from “new feedback” from its stakeholders due to integrated reporting.
-“Southwest Airlines One Report™ Review” (Hong) presents an analysis of Southwest Airlines’ first integrated report, along with a set of recommendations for improving it.
-“Integrated Reporting: Managing Corporate Reputation to Thrive in the New Economy” (Bridwell) argues that integrated reporting is an important tool for helping companies to manage their corporate reputation.
-“A Team like No Other” (Lueneburger) describes three phases for implementing integrated reporting and the key competencies within each one needed by the team that has this responsibility.
-“Will the USA Take a Leap? “ (Wallace) makes the case that sustainability reporting, followed by integrated reporting, in the U.S. will catch up with these practices in Europe with one reason being that “organizations need ways to demonstrate their credibility and lift them above their competitors.”
-“Integrated Reporting in a Competitive World of Cities” (Petersen) argues that the concept of integrated reporting is as relevant for cities as it is for companies and illustrates the benefits that could be obtained by New York City in doing so.

The purpose of external financial reporting is to help investors make investment decisions. Similarly, the original purpose of nonfinancial reporting (also called corporate social responsibility or sustainability reporting) was to provide information of interest to other stakeholders. Investors, especially socially responsible investors (SRIs) and some of the large pension funds that have a long-term view, are becoming increasingly interested in nonfinancial information. A company’s performance on environmental, social and governance (ESG) issues affects how well it is managing risk in the short term and contributes to its performance over the long term. However, just how much attention investors pay to nonfinancial information when making their decisions is a topic of much debate today and the answer varies according to geographical location (e.g., more in Europe than in the U.S. and Asia) and investment strategy (e.g., more by SRIs and pension funds than by hedge funds and mutual funds).

Part IV, “The Investor’s Perspective,” contains four chapters which provide insights from investors themselves. Haboucha makes the case that investors need to do a better job of incorporating ESG analysis into their financial analysis and links integrated reporting to good corporate citizenship arguing the “moral case” that “society will stop tolerating corporate behavior which counters its values.” Berry reinforces the moral argument for good ESG practices by companies in her chapter “Integrated Reporting: What’s Faith Got to Do with It?” since “investors who view their portfolios through the ‘lens of faith’ need ’a framework that integrates financial and sustainability reporting.’” DeSimone (“An SRI Perspective on Integrated Reporting”) notes that while “integrating ESG information into investing can be daunting” it is important do so since “time is not on our side”; he also notes the responsibility of asset owners to provide proper incentives for asset managers to take a long-term view which incorporates ESG issues into their investment decisions. Heaps explains why investors are beginning to take a greater account of ESG factors and summarizes research by Corporate Knights Research Group which identified 10 “universal key performance indicators (KPIs)” that are of interest to investors and calls for a “21^st Century Balance Sheet” that explicitly takes into account ESG factors.

Once a global framework for integrated reporting and measurement and reporting standards for nonfinancial information have been established, the question then becomes whether the integrated report should be audited and by whom. Some companies who publish nonfinancial reports have a third party provide a limited assurance statement (not a real audit), although those who do so are in the minority. These assurance statements can be provided by the company’s financial auditor, another auditing firm, or some other type of firm such as a CSR or environmental consulting firm. A number of challenges will have to be overcome in order to provide a true audit of an integrated report. These include developing audit methodologies, expanding the skill sets of financial accounting firms who choose to do integrated audits, dealing with the inevitable questions of legal liabilities for companies and their audit firms, and having investors make it clear that they are willing to have companies spend the amount of money necessary for an audit that gives a “true and fair” view of a company’s integrated report.

The four chapters in Part V, “The Importance of Auditing,” discuss integrated audits of integrated reports. In “Does an Integrated Report Require an Integrated Audit?” McCuaig notes the difference in form and content of financial audit and nonfinancial assurance opinions and addresses a number of issues that need to be resolved in order to have true integrated audits. Ridehalgh, in “One Audit—Moving Towards 21^st Century Integrated Assurance,” identifies some of the challenges audit firms will have to address in order to provide One Audit and emphasizes that such an audit will require “a more detailed report on the effectiveness of the organization’s governance, risk and management and internal controls frameworks.” In “Auditors at the Crossroads,” Johnson suggests that a more holistic and diagnostic “physician paradigm” is a more useful way to conceptualize an integrated audit than the current approach based on “regulatory compliance inspection” and discusses the relevance of the new professional credential of Chartered Enterprise Risk Analyst recently introduced by the Society of Actuaries. The final chapter in this Part, “Sustainability Reporting—Can It Evolve Without Assurance? The Audit Profession Can Help to Build an Assurance Model” (Fornelli) discusses how the accounting profession “can leverage its expertise in assessing internal control over financial reporting to develop an assurance framework for sustainability reporting initiatives.”

Integrated reporting involves adding new content to a company’s annual report. In some cases, the base document is the company’s CSR or sustainability report to which financial information is added. However, new technologies are as important as new frameworks, new measurement and reporting standards, and new auditing methodologies. These include specifically Extensible Business Reporting Language (XBRL) and more generally the Internet and its associated Web 2.0 technologies (2). Auditing firms are already facing the challenge of auditing financial statements in the XBRL format and so new technologies and new audit methodologies are closely related to each other. But the power of new technologies goes far beyond auditing. Integrated reporting is as much about a company’s website as it is about a single paper document or one report. Using Web 2.0 technologies, companies can provide more detailed information of interest to every stakeholder group; furnish users with analytical tools for analyzing data provided by the company as well as data added by the users themselves; give users access to analytical tools; allow users to customize their own integrated and other reports; provide information in a variety of media formats, such as videos and podcasts; gather feedback from users on the company’s website and reporting practices; document the amount and sequence of use of data by different types of users; and improve dialogue and engagement with all stakeholders.

Part VI, “Leveraging Technology,” contains five chapters about the contribution technology can make to integrated reporting. “The Role of XBRL and IFRS in Integrated Reporting,” by Piechocki and Servais, provides a primer on XBRL and how it is currently being used in financial reporting. Watson and Monterio explain in “Bringing Order to the Chaos—Integrating Sustainability Reporting Frameworks and Financial Reporting into One Report with XBRL” how XBRL for financial reporting can be extended to cover sustainability reporting and eventually integrated reporting if two obstacles can be overcome—the need for a neutral organization to coordinate ESG XBRL taxonomies and a collaboration of stakeholders to ensure global adoption of these taxonomies. In “Sustainable Investing and Integrated Reporting: Driving Systematic Behavioral Change in Public Companies through Global Sustainability Rankings, Indexes, Portfolio Screening and Social Media,” Muyot makes the case that a combination of rankings and social media can improve disclosure by companies and gives evidence of this in the cases of Microsoft, Cisco, and Oracle. Gristak, “Integrated Reporting Enablement,” echoes the importance of XBRL and Web tools and to these he adds the even newer technology of cloud computing. The final chapter by Armbrester, “Leveraging the Internet for Integrated Reporting,” emphasizes that integrated reporting is about much more than a single paper document and identifies three major contributions technology can make: (1) providing more detailed information to specific stakeholders, (2) improving dialogue, engagement and interactivity, and (3) increasing a company’s reporting capabilities “through exposure of data and flexibility in self-report creation.”

Engagement is not done through technology alone. It involves a wide variety of two-way conversations between individuals and between groups using a range of media from face-to-face conversations to online polls and wikis. Just as One Report doesn’t mean only One Report, integrated reporting is about much more than providing more integration between financial and nonfinancial performance metrics in a company’s external reporting. Equally important is the much higher level of engagement between a company and its stakeholders. Integrated reporting is as much about listening as it is talking. Through engagement a company (1) understands the expectations of all its stakeholders, including performance targets, and communicates its own view of its role in society, (2) determines the information needs of all stakeholders and gets feedback on how well these needs are being met, (3) manages financial, operating and reputational risk, and (4) ensures that it has a sustainable strategy for contributing to a sustainable society.

The six chapters in Part VII, “Better Engagement,” address various means and benefits of engagement. “The Business Imperative of Stakeholder Engagement,” by Nessing, describes the benefits to integrated reporting company American Electric Power from its program for stakeholder engagement that began in 2007; Nessing notes that “Companies that don’t listen to their stakeholders risk losing market share, access to capital, competitiveness, their reputation and the public trust. Why would any company deliberately risk that?” Bolick’s “Integrated Reporting as a View into Integrated Sustainable Strategies” reports on SAP’s experience in using engagement to determine the correct KPIs for providing material information on the company’s sustainability performance and emphasizes that “integrated reporting will only be meaningful if it reflects the results of an integrated strategy.” In “Integrated Reporting and the Collaborative Community: Creating Trust through the Collective Conversation,” Miller Perkins argues that because organizations are now embedded in an integrated “web of relationships and associations,” the effectiveness of these networks depends upon the trust between the parties; integrated reporting is an important way to build this trust but doing so requires companies to overcome the barriers contained within their own organizations. Riney, “Online Co-Creation Communities: A New Framework for Engagement,” focuses on engagement between a company and its customers by using social networking tools in a process of co-creation that takes account of ESG issues in developing a company’s products and services and using integrated reporting to communicate the results of these strategies. Another chapter by Miller Perkins, “Employee Engagement and the Holy Grail,” focuses on a different stakeholder—employees—and she makes the case for how integrated reporting will result in a better understanding of the company’s strategy and thus higher productivity by its employees. In the final chapter, “Engagement as True Conversation,” Parrot points out that true engagement requires a conversation based on listening and mutual learning where the company and its stakeholders focus more on articulating their interests rather than their positions.

The challenges of making sure that there is a well-defined and common conception of integrated reporting; establishing frameworks, measurement and reporting standards; developing the necessary audit methodologies; and learning how to leverage technology and effectively engage with all stakeholders are immense. An even greater challenge is creating and implementing a collaborative action strategy for the rapid and broad adoption of integrated reporting around the world in order to ensure a sustainable society. Part VIII, “Perspectives on an Action Strategy,” presents seven general views on the elements of such a strategy and how it should be implemented. Part IX, “Action Strategy Tactics,” addresses six specific tactics that can be used for developing and implementing integrated reporting. Part X, “Lessons from Experience,” draws on the experience of others who have tried to change corporate reporting in ways relevant to integrated reporting.

The first chapter in Part VIII, ”Tomorrow’s Corporate Reporting,” by Cleverly, Phillips and Tilley, presents preliminary results of a study by the Chartered Institute of Management Accountants, PricewaterhouseCoopers UK, and Tomorrow’s Company regarding the challenges of changing the corporate reporting system including the lack of trust, insufficient resources and unwillingness of stakeholders to engage, vested and conflicts of interest, and a lack of aligned incentives. In “Push, Nudge, or Take Control: An Integrated Approach to Integrated Reporting,” Li calls for regulators to take a principles-based approach that will “allow creations and innovations” but she also points out that regulation alone is not enough—regulators can push but “civil society can nudge the process” and “companies need to take control of the process as a means to develop their business strategies.” Lubber and Moffat echo the need for a multi-pronged approach that involves companies, investors, the advocacy community, regulators, and the accounting industry since “All of us have responsibilities if we’re to ensure that robust and credible integrated reporting is driven by, and in turn drives, our economy’s shift to a long-term sustainability orientation.” Similarly, Krzus, writing “Integrated Reporting: Now What?,” details what each of five groups (analysts and investors, companies, regulators and standard setters, technology and data vendors, and stakeholders) needs to do in order to make the “vision for the year 2020…a reality.” Piermattei’s “Transformative Innovation towards Integrated Reporting Passes through a Hands-on/Transition Phase and Leads to Innovation in Management” uses Procter & Gamble’s Connect and Develop model for innovation as an analogy for the “transformative and not simply evolutionary innovation process” that will be required to take integrated reporting through the stages of Explore, Exploit and Export. In “Two Worlds Collide—One World to Emerge!” Thurm emphasizes that if integrated reporting is going to become common practice by 2020, efforts in the “microcosm,” such as the work of the IIRC and industry federations, need to be connected to the “macrocosm” of “global, regional, or local targets” since “Some say we have 20 years left not to lose control over this planet.” Frank, in “Success Factors for Integrated Reporting: A Technical Perspective,” concludes Part VIII by identifying three success factors “the integrated reporting community and its proponents will have to deal with in order to successfully take corporate reporting to a better future”: (1) developing an accounting framework for nonfinancial information, (2) reducing complexity in corporate reporting through a reassessment of what information is relevant, and (3) getting greater clarity about the meaning of “integrated.”

The six tactical action strategy issues in Part IX are:

-Ensuring that frameworks for integrated reporting will work for smaller companies (“Integrated Reporting: Impact of Small Issuer Challenges on Framework Development and Implementation Strategies” by French)
-Mobilizing consumers, employees and stakeholders to support integrated reporting (“Beware of Greeks Bearing Gifts” by Bose)
-How lawyers can and should support the development of reporting standards (“The Role of Lawyers in Integrated Reporting” by Sarfaty)
-The role stock exchanges can play in spreading the adoption of integrated reporting (“The Role of Stock Exchanges in Expediting the Global Adoption of Integrated Reporting” by Zimmerman)
-A process for defining material KPIs to be included in an integrated report (“Integrated Reporting and Key Performance Indicators” by Lydenberg and Rogers)
-The importance of not having too many KPIs and putting them in the context of narrative information (“Developing Key Performance Indicators to Support Integrated Reporting” by Shibasaka)

Part X is comprised of six chapters in which the authors reflect on their own experiences with corporate reporting in order to offer suggestions for developing and implementing integrated reporting. In “Some Thoughts on Advancing the Vision and Reality of International Integrated Reporting,” Herz, the former Chairman of the Financial Accounting Standards Board, states that both “general marketplace acceptance on a voluntary basis” and “governmental and regulatory support and action” will be required. Analyzing French initiatives to improve corporate reporting up to and including The Grenelle II Act which “makes integrated reporting mandatory for about 2,500 businesses and for a few hundred state-owned companies,” d’Humières and Jandot emphasize that a “strong political push” must be supplemented by efforts from accounting authorities and financial market authorities, as well as analysts, investors and academics. Jeyaretnam and Niblock-Siddle review Australia’s experience with sustainability reporting in “Sustainability Reporting: Where Does Australia Stand?”; they also discuss materiality, review the superannuation fund VicSuper’s transition to integrated reporting, and highlight how the diversified property company Stockland is using its website to communicate with its stakeholders. In neighboring New Zealand, McGuiness and Bradshaw report on a just-completed survey of the practices and plans for integrated reporting of the largest 200 companies in that country: “Integrated Annual Report Survey: New Zealand’s Top 200 Companies.” The last two chapters are based on the experience of the Carbon Disclosure Project and the work of the Climate Disclosure Standards Board. In “The Climate Disclosure Standards Board: Setting a Standard for Realism and Resilience,” Guthrie discusses what was done to address a “confused disclosure landscape” about climate risks and greenhouse gas emissions in order to create the Climate Change Reporting Framework, published in September 2010, “whereby investors would reward stock prices of companies that integrate sustainability to their business and companies would respond by further improving their sustainability performance.” Topping, authoring “CDP’s Lessons from Ten Years of Climate Disclosure,” then draws eight lessons from their experience, identifies six traps to avoid, and lays out a roadmap for achieving a disclosure program “that is mandated by regulation and that requires companies to disclose according to a rigorous accounting standard and to have disclosures assured by a third party.”

Three clear points emerge out of these 19 chapters on developing and implementing an action strategy. The first is a clear sense of urgency—we have 10 years at most to make integrated reporting the universal practice. The second is that both market and regulatory forces must be brought to bear. The third is that collaboration on a massive scale with virtually every stakeholder group will be required.

Part XI, “Final Reflections,” concludes the book. Saltzman points out in “Integrated Reporting and the MBA Education” that business schools have the potential to make an enormous contribution to integrated reporting by including this topic in their MBA programs as they train future generations of leaders since “Business schools can play a critical role in shaping our world and can have a profound impact on creating a more sustainable future.” Good research is at the foundation of good teaching and in “A Proposed Research Agenda on Integrated Reporting,” Cheng lists a number of potential research projects, including studies of the relationship between financial and nonfinancial performance and deriving lessons from the first wave of required integrated reports in South Africa this year; she concludes that making research a high priority is important since integrated reporting “is a field that has attracted limited attention so far but is witnessing increasingly faster growth and greater impact these days.”

I have a final reflection of my own. The most important thing about integrated reporting today is that it is an emerging social movement. The meaning of integrated reporting will only be developed and its implementation will only happen if this movement is an effective one. This will require a high level of commitment that comes from energy, enthusiasm, trust, courage, persistence and collaboration amongst every person and organization who believes that integrated reporting can play an important role in ensuring that we have a sustainable society. The co-editors and authors of this book have this commitment and we hope that every reader will as well. Please join the integrated reporting social movement for your own sake and for the sake of generations to come.

Robert G. Eccles is a Professor of Management Practice at the Harvard Business School. He is the author of three books on corporate reporting, the most recent one being One Report: Integrated Reporting for a Sustainable Strategy (with Michael P. Krzus). He has a personal commitment to doing whatever he can through his research, teaching, and collaborations with others to facilitate the rapid and broad adoption of integrated reporting in order to create a more sustainable society.

Endnote: (1) Integrated reporting is the combination of a company’s financial report and its corporate social responsibility or sustainability report into a single document. It also involves leveraging the Internet to provide more detailed information of interest to shareholders and other stakeholders, as well as for improving dialogue and engagement with all stakeholders. See Eccles, Robert G. and Krzus, Michael P. One Report: Integrated Reporting for a Sustainable Strategy. Hoboken: John Wiley & Sons, Inc.
(2) Extensible Business Reporting Language (XBRL) involves assigning electronic “tags” from a “taxonomy” or business dictionary to both quantitative and qualitative data so that it can be distributed and consumed over the Internet in a rapid and efficient way.

PART I

The Role of the Corporation in Society

Accounting and Accountability: Integrated Reporting and the Purpose of the Firm

Robert Kinloch Massie

Visiting Scholar, Harvard Law School; Co-founder, Global Reporting Initiative

The successful pursuit of integrated reporting will require the disentanglement, analysis, and eventual reconciliation of divergent views on the purpose of the corporation. The debate over integration is, in part, a debate over the materiality of key information. Materiality, in turn, is often a question not just of content but also of goal and of audience: we must be able to answer not only what are we measuring, but why, and for whom? Are we seeking to answer the questions of managers and shareholders? Or are we also providing key data to a wider community of stakeholders on whom corporate success is mutually dependent? In other words, is integrated reporting an extended version of traditional financial accounting, or is its focus firm accountability in which the corporation is seen as a holistic mechanism for creating human prosperity? If we are asking whether some form of reporting is material, we must be able to specify: material to whom?

The concepts of accounting and accountability are obviously related: they refer to transparency, accuracy, and responsibility for the consequences of decisions. At the same time, differing assumptions about shareholder and stakeholder theory are likely to affect how integrating reporting will be designed and carried out.

I. Integration and Purpose

Financial reporting has undergone substantial changes over the last hundred years and is currently being challenged on whether it provides an accurate portrait of the present and future performance of firms. Sustainability reporting, which has come into being over the last two decades, looks at a different set of corporate impacts. Until recently these approaches developed along parallel tracks, leading many corporations to attempt to explain their strategies for value creation in two different languages, formats, and reports. The formation of the International Integrated Reporting Committee—with representatives from the worlds of both financial and sustainability reporting—are exploring whether the two can, in some manner, be merged.

The choice of how to approach such a merger, however, depends on one’s views of the core purpose of the firm. If one believes that the purpose of the firm is exclusively to promote the interests of shareholders, then the path toward integrated reporting might be simply to select a handful of measurements from the sustainability field that can be shown to be directly useful to enhancing shareholder value. On the other hand, if corporate value and prosperity are broader concepts in which shareholders play an important role—but not an exclusive one—the purpose of integrated reporting would be to demonstrate the necessary interdependence of stakeholders.

To analogize it to auto manufacturing, is integrated reporting attempting to add a stronger engine and fancier electronics to an existing vehicle? Or should it acknowledge that the automobile is a means to an end: the provision of safe, convenient, low-cost mobility? To put it another way, financial reporting tends to assume that strategic goals are relatively fixed and that the challenge faced by managers is one of mobilizing and disbursing capital to achieve them. Sustainability reporting often leads to the assessment of deeper strategic questions such as “What business are we really in? What large scale impact are we having? Whose needs are we trying to meet? And how is our industry changing?”

Integrated reporting is a worthy goal. By pointing out the implications of the definition of the firm for its development, I am not suggesting that such questions invalidate the effort. At the same, divergent intellectual premises must not be papered over. By facing these complexities early on, we are far more likely to develop a system of integrated reporting that will meet multiple objectives for multiple parties.

To explore the assumptions in greater detail, let's begin with the statement of purpose—or “terms of reference”—for the Working Group of the International Integrated Reporting Committee (IIRC) (1). The objective of the recently formed committee, they write, is to develop an “integrated reporting framework” that will:

1. support the information needs of long-term investors, by showing the broader and longer-term consequences of decision-making; [emphasis mine]
2. reflect the interconnections between environmental, social, governance, and financial factors in decisions that affect long-term performance and condition, making clear the link between sustainability and economic value
3. provide the necessary framework for environmental and social factors to be taken into account systematically in reporting and decision-making
4. rebalance performance metrics away from an undue emphasis on short-term financial performance; and
5. bring reporting closer to the information used by management to run the business on a day to day basis.

Though the statement explicitly says that the purpose of reporting is to support “the needs of long-term investors,” it also admits an underlying consensus about the problems with traditional financial reporting. The statement implies, for example, that current financial accounting has a tendency to focus on the wrong things over the wrong time frame. The language additionally implies that short-term market pressures make it difficult for managers to assess the long-term consequences of their decisions. Because management often omits structural data that can have significant bearing on the performance and value of the firm, “environment, social, and governance” (ESG) information needs to be incorporated in new ways. Finally, the statement suggests, any resulting system of measurement must be “closer to the information used by management to run the business on a day to day basis.” This last point is, at best, unclear. Is it suggesting that future tools should be comparable to those that managers are using to manage their firms, or to one which they should use if better one were at their disposal? One also has to wonder how this objective—to provide day to day tools for feedback and decision-making—fits snugly with the aspiration that goals should be measured over the long term.

II. Shareholder Primacy

The statement is helpful in clarifying the shared goals of the project, but it refers only tacitly to corporate purpose. Perhaps to most of the participating organizations the answers seem self-evident. For those with a traditional 20th century perspective on corporate structure, the purpose of the firm is to maximize financial value for the shareholder. Under such a doctrine of “shareholder primacy,” the legal status of the shareholder as the central authority in corporate governance dictates that all effort within the firm ultimately be directed towards their benefit. This theory of ownership in turns flows from a particular historical understanding of property rights. Shareholders lay claim to predominance and to corporate governance because of the supposedly unique risk they bear as both the providers of initial capital and as the residual claimants, after other debt holders and contractual parties have been paid, to the remaining value of the firm.

Under a theory of shareholder primacy, the purpose of introducing integrated reporting is to surface previously invisible ESG elements that would affect the financial value of the firm. This approach, even when framed narrowly, remains complex. The debate has raged for many years about a) whether the inclusion of ESG factors does indeed influence the financial performance of the firm; b) whether this effect can be discerned in the short term or only over the long; and c) whether the effect is primarily due to the identification of positive elements that lead to greater profitability or to the avoidance of risks, volatility, and costs. Whatever the description of the effect, the notion of obligation to shareholders is unaffected.

In the last generation, increasing numbers of economists, investors, accountants, executives, and public officials have accepted that idea that ESG factors do—in some manner—have an effect on the firm. The question for many is how to extract the relevant information from the plethora of ESG issues in a way that can be used by analysts and managers to extract additional relative value, or “alpha,” for shareholders (2). Under this assumption, the task of designing an integrated reporting framework will be to sift through the utility of measurements and indicators, keeping or tossing those on the basis of their perceived value to financial returns and to shareholders.

III. Stakeholder Model

An alternative view of the corporation would lead to a different approach. Under stakeholder theory, shareholders are viewed as a critical constituency of a firm, but not its sole justification. The corporation is instead conceived of as a complex entity, comparable to a biological organism, that relies on multiple inputs of resources, including human, natural, and financial capital. The purpose of the firm is to create a net gain for all the participating parties. The role of management is to orchestrate the proper sequence and balance of actions to achieve this goal.

The core argument for stakeholder theory rests on two premises. First, many issues that will eventually have significant impacts on the value of the firm are often not recognized initially as “financial questions.” Stakeholder theory, and its counterpart of ESG reporting, provides a distant early warning system that introduces questions of strategy to managers before it is one can say with precision how they should be factored in and monetized. Second, the inclusion of ESG factors allows for the correction of pricing distortions and market inefficiencies that result when the full factor costs of a firm decision are not included.

Though some corporate critics have argued that the maximization of profit and shareholder value is always at war with the achievement of all other interests, traditional economics and financial accounting have taken a more instrumentalist and nuanced approach. Traditional financial theory argues that having a single objective function (shareholder value) actually permits the balancing role that they concede is part of the social function of the firm. The premise is that since markets efficiently price the contributions of both natural and human capital, managers who are tempted to undervalue these factors in order to favor narrowly financial outcomes will eventually be penalized and forced to recalibrate.

This optimistic view is seriously flawed. To begin, even the most ardent theorists recognize that market failures crop up with alarming frequency. Moreover, innovations in economic theory have identified important anomalies in which non-rational behaviors and sticky transitions prevent the smooth rebalancing of factor inputs (3). And finally, we know that large scale collective action problems, incentive misalignments, and principles of game theory press managers to pursue narrow or short-term objectives even when such actions may damage the firm over the long-run.

The problems increase by orders of magnitude when the relevant domain for the creation of value is an entire industry, a region, or a nation-state. Through these complexities we enter the realm of public policy, in which rules and incentives are invented in an attempt to offset the distorting influences of collective action problems. We create “rules of the game” in which competition among firms can still be reconciled with public goals and benefits. For proponents of sustainability within firms, an advantage of integrated reporting is that it will introduce greater awareness of these collective impacts into institutional decision-making. For opponents of such an expanded mandate for firms, this is precisely the problem; firms should only be considering their own institutional well-being and avoid anything that distracts attention or draws resources from its financial objectives. In this view, collective decisions should be made through politics. If that's so, their counterparts respond, corporations should not be spending shareholder assets to influence political decision-making, which should be a debate about the public good.

IV. Towards Integrated Reporting and Balanced Purpose

Sustainability reporting, when it arose, challenged many of the core assumptions of financial accounting. Globalization, technological advancement, expanding markets, and resource depletion have been altering the basic conditions of commerce, so much so that new theories and tools are desperately needed. While early airplanes could get by with simple instruments—airspeed indicators, compasses, and eventually altimeters—most pilots relied for navigation on what they could see out the cockpit window. As the power, range, and size of aircraft have increased, so has the need for instantaneous and accurate information. Current electronics allow pilots to identify hundreds of pieces of information about the functioning of the planes for which they are responsible, allowing the aircraft to avoid collisions and to be flown safely under far more difficult conditions.

Sustainability advocates argue that measurement must be improved because the nature of information and value has changed across the board. In finance, the definition of an “asset” has shifted dramatically from tangible components like machines and land to intangibles like intellectual property and brand value (4). In the environmental dimension, long-ignored elements like greenhouse emissions, water scarcity, toxins, and resource depletion have major implications for stability of production, taxation, and consumption. In the social realm, the education, loyalty, and expectations of employees, customers, and local communities can have a direct impact on the success of the firm in arranging to receive the necessary capital. As evidence of these correlations grow, more and more parties are trying to understand and control, as the IIRC terms of reference state, the “interconnections between environmental, social, governance, and financial factors ... [as well as] the link between sustainability and economic value.”

Though not everyone accepts the idea that a single objective function—shareholder value—will automatically reconcile all other questions, supporters of integrated reporting generally believe that the apparent tensions between different goals can be reconciled if the time horizon is pushed out long enough. Prosperity is prosperity, they argue. To pursue financial objectives without considering the larger contextual impacts is both societally wrong and financially dangerous since the firm will eventually make mistakes and be penalized for its errant behavior. Similarly, the pursuit of ESG factors for their own sake cannot be sustained if the firm becomes unprofitable, a direction that will eventually cut off the critical resources of revenue and capital to even the most well meaning firm.

The underlying assumption of this perspective is that firms are currently functioning below their optimal level of both social and financial performance. There is thus great room for joint gains, as companies discover that they can advance up and out towards higher Pareto optimality on a sustainability/prosperity curve. There is considerable anecdotal evidence to support this view. For example, a decision to review an ESG factor such as greenhouse gas emissions can lead to a re-examination of transportation, energy use, production logistics, and even packaging that ends up both saving the firm money and reducing pollution.

Of course, there remain just as many counter-examples, where financial returns are increased when firms externalize their costs on to other parties. The cultural image of the rapacious corporation, mindlessly pursuing profit and shareholder value without regard to the consequences to parties “outside” the firm, flows from these very real and often painful patterns. The political, moral, and economic debate about the role of the firm in society turns on whether the externalization of such costs is an inevitable and uncontrollable feature of modern capitalism which happens at such a scale that it calls into question the benefits of corporate value-creation. In the view of corporate skeptics, the only response to such damaging behavior must be regulation, enforcement, and penalties that force a firm to recalculate the costs and benefits of cost—shifting on to innocent parties.

A model of that assumes that corporations are structurally prone to exploitation leads to a pattern of deep social distrust on all sides. If corporations rely exclusively on the rhetoric and practice of shareholder primacy, consumers, communities, and workers often conclude that managers are seeking profit at any cost. Corporate managers, in turn, often feel stereotyped and misunderstood, when they discover that their motivations, talents, and decisions are routinely rejected as compromised.

The massive disruptions in capital and corporate markets—and the stupendous destruction of value—throughout the first decade of the twenty-first century has called into question the viability of the shareholder primacy model. The introduction of the stakeholder theory of the firm was designed to provide both a practical definition and a new normative code for describing and guiding the complicated decisions that managers must make. While it has yet to achieve universal acceptance—partly because of a perplexing lag in legal theory—more and more parties have found this model helpful in creating a more nuanced understanding of the benefits and costs of the corporate form.

Financial reporting reflected and encouraged a narrow view of shareholder primacy. Sustainability reporting arose as a corrective. The concept that the two can be reconciled reflects the deeper aspiration that one can reground the definition of the role of the corporation in less polarizing and more productive concepts. There remains considerable uncertainty among the parties as to whether the goal can be achieved. Supporters of traditional financial reporting worry that introducing sustainability will lead to the introduction of irrelevant information or to the distortion of the role of the firm. Advocates for sustainability reporting worry that after years of being ignored by financial theorists, integrated reporting could end up as a mechanism through which traditional methodologies capture, subordinate, and dismiss the substantial gains of more than a decade of sustainability research.

It thus become not a question of whether a few isolated ideas from sustainability reporting can be imported back into the older model of financial accounting in order to improve the performance for shareholders, or whether financial accounting can simply be recast in ESG terms in order to achieve objectives that include broad public policy goals. The real challenge—which can be met only if it is honestly faced—is whether the creation of a system of integrated reporting will affirm and support a more accurate view of the role of the corporation in creating long-term value for individuals, for firms, for stakeholders, and for communities.

For an individual who is suffering from the symptoms of undiagnosed illness, the first steps towards health is an unblinkingly candid diagnosis, followed by a course of action that openly acknowledges the interdependence of treatment with the natural systems of the body. If the goal of modern economic life is sustainable prosperity, and one of the main vehicles for its achievement is the complex and powerful modern firm, then we need to acknowledge the full range of underlying assumptions, and thus create not just integrated practice through reporting but integrated theory as well. This is the true challenge of merging accounting with accountability, one whose successful resolution would bring rich rewards for the century ahead.

Endnote: (1) http://www.integratedreporting.org/ Full disclosure: The author was recently appointed to the Working Group of the International Integrated Reporting Committee, though as of November 2010 had not yet attended a meeting.
(2) The "alpha" coefficient, a component of the capital asset pricing model, is defined as the measurement of an investment's performance over and above the performance of investments of the same industry or risk.
(3) See the field of behavioral economics. http://www.econlib.org/library/Enc/BehavioralEconomics.html and the recent Nobel prize in Economics which was awarded for labor market "search frictions" - http://nobelprize.org/nobel_prizes/economics/laureates/2010/press.html
(4) http://www.investopedia.com/terms/i/intangibleasset.asp

A CEO’s Letter to Her Board of Directors

John Fullerton, Founder and President, and Susan Arterian Chang, Director

Capital Institute

Capital Institute is pleased to participate in this creative and important project. The challenge of measuring what matters is not new. But what matters now, in a world where we consume the earth's resources at a rate 1.5 times faster than they can be regenerated, is profoundly new. The laws of thermodynamics do matter, more so every year, as our ecological footprint continues to grow. Our economics, and capitalism itself, depend upon business playing a leadership role in finding a path to truly sustainable capitalism. We are especially heartened by Dean Nitin Nohria’s expressed belief that by committing itself to that path and assuming that critical leadership role, business can reclaim society’s faith and trust.
-- John Fullerton

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