Integrated Reporting – A Way of Thinking

Not that we were hearing these words for the first time. What was noteworthy though was that these issues have moved from the realm of being philanthropic do-gooding to a business imperative.

The sustainability that was taught, spoke of the so-called triple bottom line, meaning that organizations have to focus on more than just making Profit. People and Planet are just as important, if not more so.

For sustainable growth above an industry average, organisations have to single-mindedly focus on key sustainability principles. Opportunities will come exponentially from a mindset that stresses the ‘4Rs’ of renew, reduce, reuse and recycle.

Hence enter the Corporate Citizen. Nothing really academic. Simply put, this means that organizations ensure (irrespective of the business they are in) that they operate sustainably.

Addressing the MBA Class, under the title “Integrated Reporting – A Sustainability Journey”, Andrew Johnston, Group Company Secretary of Altron, emphasised “sustainability is the primary moral and economic imperative of the 21st Century”.

Altron have made such a commitment to operating sustainably, being one of the first companies in South Africa to produce an integrated report, prior to it in fact it becoming a listing requirement (the JSE has made it a listing requirements that all companies with a year-end starting on or after 1 March 2010 are required to abide by the King III Code of Corporate Governance, which means producing an Annual Integrated Report).

In relating Altron’s own experience, Johnston stressed:

  • There is no right or wrong integrated report;
  • One size does not fit all;
  • Bigger isn’t necessarily better;
  • Frameworks and guidelines are exactly what they say they are;
  • Integrated reporting is not a process, but rather a way of thinking;
  • You need adequate board governance and sustainable development structures in place before you can produce an integrated report;
  • Integrated reports flow from integrated reporting – not the other way round.
  • Teamwork counts!
  • Integrated reporting is not a one-day wonder!

In explaining the journey to us, it was clear from Johnston’s presentation that the last two points above were probably the most important in terms of getting it done, but fundamentally, it is the emphasis of it being a way of thinking which we saw as the ‘game breaker’ for many companies.

As a consequence we were struck by the similarity of Altron’s journey to Hayes and Wheelwright’s four stages of operations model as described in Pycraft [1], and which we have taken the liberty of adapting to have a sustainability focus:

Stage 1 – Stop doing harm: In the first stage the organisations seek to remove the worst of their impact AND report these improvements.

Stage 2 Be among the best: The second stage would be adopting the BEST practice in the industry insofar as sustainability improvements and integrated reporting requirements are concerned.

Stage 3 – Be the best:  Sustainability principles are driven through the core of ALL the operations of the firm.

Stage 4 – Achieve strategic advantage: Organizations, who achieve true sustainability and show absolute commitment to integrated reporting, will be the industry leaders in EVERY aspect of their mission.

Two other points stressed by Johnston emphasized were the importance of risk management and that Altron sees sustainability as a business imperative. Our interpretation of this is that the company has made a full commitment to get to Stage 4.

Whether our model means that companies move sequentially from one stage to the next is a point to be argued. In the case of Altron, our assessment is that they are well into Stage 2, with evidence of Stage 3 emerging.

Whilst stressing the importance of Integrated Reporting from a risk management perspective, Johnston also made it clear that it has the potential to bring huge opportunities.

Without an effective risk management discipline, the company lacks the ability to:

  • enhance business performance, competitive advantage and service delivery;
  • establish business priorities;
  • manage changing business complexities;
  • understand the changing effects of technology and its impacts;
  • co-ordinate business efforts and optimise workforce; and
  • improve bottom line (triple bottom line) performance.

Get this right and he believes that the opportunities will avail themselves!

Stakeholder engagement has played an important role in the company’s journey.

Johnston was very candid in stressing that the journey to date had not been easy, not least of which was grappling with what strategic themes were to be pursued (they settled on 11 in the end), what the right degree of disclosure means, how this disclosure is made, discussing and addressing threats and what this journey actually means to the investor community.

From a practical point of view, it has also been extremely difficult to produce a short report (the recommended guide is that it should not exceed fifty pages). Altron are working very hard to ensure that the next integrated report is closer to recommended length (2010 and 2011 have already been published).

In conclusion, he stressed that whatever difficulties companies may have in producing an integrated report, at the end of the day  the right approach is to go the ‘whole hog’, no more and no less. We certainly second that!

Article written by MBA2010 Class students: Herbert Batidzirai, Masi Mfabane, Ndumie Mfenyana,  Ofentse Mokitlane, Sydney Nkatsha and Sindiswa Tywabi

[1] Pycraft, M., (2000) Operations Management, Pearson Education