Business Thought

Reporting: Open Book | Creating the Virtuous Organization

The cloud of the stock market crash of 1929 did have a silver lining: more mandated business accountability through reporting. This collapse birthed the legislation that ensured public disclosure of a company’s corporate activities over the past year, affectionately known as the annual report. This report is provided to shareholders (and often made available to other stakeholders) to evaluate the business’ financial performance. Since it’s auspicious start, the report has reliably contained general corporate information, operating and financial highlights, a CEO letter, financial statements, an auditor’s report, and other notes and summaries. 

Perhaps the most vital element of accountability is open book transparency. Transparency refers to the ability of relevant stakeholders to readily observe the decisions that drive an organization and the consequences of those decisions. In practice, transparency takes on different dimensions according to an organization’s sector, industry, governance model (e.g. private vs. public company), and stakeholder set. If stakeholders are able to observe what is going on at all levels of an organization, they will create natural pressure to move towards agreed-upon goals. 

Along with more valuable and more interesting reporting, the last decade has also seen significant adoption of the idea and practice of integrated reporting – a process that consolidates and discusses all dimensions of business performance in one report. Integrated reports combine the mandated corporate financial reports with voluntary, nonfinancial disclosures. Virtuous organizations are strategic about their use of financial, natural, and human resources and want to account for the positive and negative externalities these decisions create. Typically, reports on corporate governance, environmental responsibility, social responsibility, and corporate performance have been published separately and directed towards disparate audiences. The broad adoption of integrated reporting has the potential to externally engage more stakeholders in support of the way a company does business, at the same time it supports the expansive way in which corporations internally view their role in society. 

Unlike self-evaluation, which is done internally and may be kept mostly internal, reporting takes what is helpful for the more external or public parts groups of stakeholders to know and puts it out there. But, similar to self-evaluation, integrated reporting is not a function put in place to respond to an external government regulation or social expectation. Virtuous organizations see highly transparent reporting as part of strategic alignment and creating accountability to various stakeholders. They use it to maintain accountability to sustainability strategies and approaches to broad value growth. Reporting practices, and making the reports broadly available and accessible to stakeholders, help virtuous organizations align and integrate approaches across business divisions and improve strategy and management. 

This type of open book reporting demonstrates an organization’s confidence and can motivate stakeholders. It also does not seem to be without risk or discomfort. Transparent reporting opens a company up to a more public view of difficult conversations and complicated decisions. While the virtuous organization holds the voice and impact of decisions on all stakeholders in high regard, businesses can rarely satisfy everyone. 

However, reporting that allows stakeholders to clearly see the long-term thought, trade-offs, or other relationships between financial and nonfinancial business decisions as a business navigates its role in society, is powerful for deepening stakeholder trust and loyalty. 

Virtuous organizations orient their reporting to mission driven goals in a way that may require reporting on progress more than the achievement of a goal. For example, the consumer goods giant Unilever has the vision of a “waste-free world.” They have committed to an absolute plastics reduction across its portfolio and publicly announced that it intends to cut it’s use of virgin plastic in half and process more used plastic than it sells, all by 2025. These goals are built on existing packaging targets to make all its plastic packaging reusable, recyclable, or compostable by 2025. They are attacking this goal to eliminate plastic waste by involving product design, reducing actual use, and increasing recycled sources in their supply chain. By setting goals and reporting on progress, Unilever demonstrates how it is responding to its self-evaluation and is committed to integrating strategies to minimize harm and maximize value. 

Virtuous organizations thrive in their stakeholder interactions with this open book accounting. Employees, made aware of reports, are empowered to speak more substantially to the company’s strategic goals and progress. Customers and investors, having heard first from organizations about the harms caused by a company’s products and processes, are empowered by consumer education rather than slick marketing when also told the benefits of a company’s products and processes. 

This type of forward-based and transparent accounting helps the virtuous organization to report, in effect, “These are our values. We are working hard to honor them. Our vision for the world is aspirational, and our mission is ambitious. We’re not there yet. But we are committed to everything we say we are committed to. Here is exactly where we fall short and what we are doing to be better.”

Leave a Reply

Your email address will not be published. Required fields are marked *