We’ve begun work on a two-year pilot project that is exploring integrated accounting. It is early days yet, but we are hoping to understand what reshaping our corporate reporting in an integrated framework, which will give our shareholders a more rounded insight into our activities, is likely to entail.
This will include demonstrating the relationship between our financial and our non-financial performance, including how we manage sustainability issues. Our hope is also that integrated reporting will provide us with the ability to discuss matters in a less formulaic way than under current arrangements. However, I suspect we will find that much of our existing content will form the basis of our integrated report.
At present, at the year-end, we produce a 400-page annual report and accounts, a shorter version in an annual review format, an 85-page [Basel II] Pillar 3 report, and a sustainability report. In addition, we file 800 pages of information in the Form 20-F with the US Securities and Exchange Commission.
Much of the information contained in these documents is driven by statute and regulation. As a consequence, over the years our annual report and accounts has increasingly taken on the character of a compliance document, and its effectiveness as a communication tool has diminished.
Despite our best efforts, the response of the investor community [to our reporting] is invariably mixed. We are criticised in some quarters for producing excessive amounts of indigestible information, while others complain we do not disclose enough on the topics they are interested in. It’s ironic.
One of the challenges of integrated reporting is how you include extra information in an annual report and yet make it more concise. This will not be easy because there is no sign of existing reporting requirements going away. The International Integrated Reporting Council could help here by bringing together governments and regulators to establish a degree of unity on reporting. That would help international organisations such as HSBC to keep the size of the document down.
In our pilot project, we are taking some of the disclosures in our 2010 annual report and accounts and looking at how we might have presented them in an integrated report format. Revisiting time-honoured approaches to reporting and rewriting published drafts is challenging, because it forces you to rethink the way in which disclosure is constructed, but it is rewarding insofar as it encourages you to think beyond familiar boundaries.
We are starting from the premise that the core of integrated reporting is a description of the company’s business model – [the strategy of the company and how it actually creates value]. This is an area, we think, where the quality of disclosure needs to improve. The traditional approach, which tends to be based on compliance with the Companies Act requirement to disclose principal activities, doesn’t generally cut the mustard.
It is important to provide an insight into how the business is organised and how that underpins the creation of value and the generation of profits by the company. This might be achieved by illustrating how the company identifies and defines its markets, how it is organised to serve these markets, how this organisation is reflected in its business model, and how the company’s responsiveness to the needs of its markets helps generate value for the shareholders. This is fundamental to helping stakeholders gain a deeper understanding of the company.
One of the more interesting implications of a move towards integrated reporting for a lot of organisations – but particularly those the size of HSBC – will be the extent to which it triggers changes in internal management structures and reporting. Any developments in this direction will clearly take time and will be complex for all concerned.
In common, I am sure, with most companies, we endeavour to describe what we do and explain our performance as clearly as possible for our various stakeholders. We try consistently to communicate effectively, and we’re always looking for ways to improve the quality of our corporate reporting. For example, we were active participants in the Prince of Wales’ Accounting for Sustainability Project. So, for us, integrated reporting is a natural extension of these ambitions.
It’s early to be talking about benefits. We don’t know at this stage where this process will take us – but if it helps us produce a better communication tool for our investors and the broader stakeholder community, then I think we would see it as a success.