CFOs, you are now flying into uncharted reporting territory. The goods news is that the LUV airline has your back by posting their 2012 Southwest Airlines One Report. This report can be your template on how to design a report that is responsive to the growing stakeholder and stockholder expectations for one report that details your company’s financial, environmental and societal governance.
Linking People, The Environment And Finance
Traditional CFO reporting tools no longer satisfy stockholder and stakeholder reporting expectations. For example, traditional CFO reporting tools like the income statement or balance sheet struggle to capture supply chain risks or even actual supply chain events like a factory fire in a foreign country that heavy damages a company’s credibility with customers. Another example is their inability to capture brand equity degradation with the millennial generation and potential for increased government regulation tied to climate change. The missed opportunity of traditional CFO reporting tools is the diminished ability to tell a company’s compelling story on their social and environmental commitments that align with prudent financial operations.
Best Practice: Southwest Airlines One Report
Southwest Airlines’ integrated report provides a best practices example. It’s front cover picture is a home run from showing work associates inside an airplane holding the three key messages of the report. Study this picture for what it conveys before outlining your next (or first) integrated report.
Southwest has designed a concise and targeted report reflective of their operational efficiency. Importantly it is numbers driven. Their numbers convey an impression of a management team that has a clear mission, know their key performance indicators and can effectively articulate their financial, societal and environmental performance.
The Integrated Report Format
The formatting goal for an Integrated Report is to provide stockholders and stakeholders with an encompassing assessment of a company’s financial, societal and environmental goals, risks, measurement tools and performance. The eight chapters every Integrated Report should contain are:
- Summary Page
- CEO’s Message
- Year’s Performance Highlights
- Financial Report On Performance
- Work Associate Assessment
- Social Responsibility Goals and Performance
- Environmental Goals and Performance
- Contact Information
Summary Page. This one-page, first-page should concisely summarize the enterprise’s mission, goals, performance and risks. It should be fact and number driven. It’s focus should be on stockholders and stakeholders. It should articulate an enterprise scale representation of the company’s financial, societal and environmental positioning within the company’s industry.
CEO’s Message. One page personal letter (at the most two pages) by the CEO on his or her’s vision and performance expectations. This statement should summarize the CEO’s goals in terms of sales, market penetration and financial performance. It should also include the CEO’s expectations for how the company engages with work associates, suppliers and stakeholders. Finally, it should address the company’s corporate governance of its societal and environmental footprint.
Year’s Highlights. This section should profile results achieved by the company during the year that have HIGH HUMAN INTEREST. I purposefully highlight “high human interest” because too often what is exciting to management can be viewed as propaganda or a sales pitch by investors and stakeholders. In terms of societal and environmental news this section should target what the company has achieved that has made a difference in people’s lives by solving an “in me, on me or around me” solution. Giving money to a charity, installing solar power at your facility or removing a toxin from your product design is not news. Stakeholders would view these actions as prudent steps in outreach, cost control and risk management. Examples of environmental “news” would be the development of a proprietary new technology that is reducing costs and emissions. A societal news example would be if your company decided to fund the science that cures a world disease. If your company really doesn’t have news to report then an alternative in this section is to post meaningful stakeholder and customer testimonials.
Financial Performance. Now we are in the more traditional comfort zone of financial reporting. This section should begin with a summary from the CFO that addresses the company’s financial goals, year’s performance results and identified fiduciary risks. It would be pioneering if the CFO’s summary also addressed the financial performance of sustainability efforts like the recycling of waste in a manner that generates new revenues and profitability. This section contains the traditional financial reports like the income statement, balance sheet and ten year summary. It is also the location for financial notes.
Work Associate Assessment. This section addresses how the company engages its work associates including its supply chain associates. It should begin with a message from the COO. This message should outline the company’s governance and human resources goals on topics that can include safety, recruitment, retention, benefits, training, ethics and diversity. This section’s goal is to document your company’s authenticity for associates, suppliers and stakeholders. Transparency is a key authenticity building block. When writing this section consider the threat Apple faced from a customer backlash created by social media postings of suicides and stressful work conditions at one of Apple’s major suppliers. If there are internal questions regarding transparency then consider Apple’s lessons-learned that auditing for work associate problems, revealing any surfaced problem and stating an intention to act will result in stronger positioning with customers, associates and stakeholders.
Social Responsibility Goals and Performance. It may have been a challenge to link social responsibility and financial reporting before the dawning of this Information Age. But I cannot imagine a CFO not sensitized to the potential for a societal issue impacting customer purchases. A telling example is the financial impacts upon Beef Product Inc. when its product was labeled via social media as “pink slime!” This section should begin with a summary by the officer responsible for the company’s social responsibility performance. For many companies this could be the CEO. If the answer is that a company has a difficult time identifying the officer ultimately responsible for social responsibility then that can be a revealing result generated from producing an Integrated Report. It can also be revealing if the identified officer is the head of the company’s charitable foundation or the head of the legal department where in either example the senior officer does not have line-management responsibility or a direct reporting relationship with the CEO. This section should address in candor and transparency the company’s societal impacts.
Environmental Goals and Performance. Every company has an environmental footprint. This footprint is emerging to be defining in terms of competitive advantage, risk management and stock valuation. This section should be framed by a paragraph-long CEO vision statement and supported by a one page summary from the Chief Sustainability Officer. This section should talk directly to the significant environmental impacts of the company. It should also assess the financial risks of the company’s environmental footprint. Finally, it should report on what is being achieved and what is still to be achieved.
HIP Investor is a good place for a CFO to begin in researching how to measure a company’s human and environmental impacts in a manner that aligns with financial reporting. It would be very HIP of a CFO to use their analytics. And even hipper if the CFO followed Southwest Airlines’ example in filing a compelling integrated report in a digital format.
Today the image of a company as a good investment, a good citizen, a good place to work and a meaningful service is being shaped by what stakeholders post on their social media. Integrated Reports provide a platform for starting conversations with stakeholders on topics the stakeholders want to talk about and are talking about. Too often stakeholder social media conversations do not include participation by the talked about company only because a bridge from the company to the stakeholder has not been execute (especially so with the millennial generation and many of their moms, Concerned Caregivers). An Integrated Report formatted not only as a report but as blogs, YouTube videos, tweets and Facebook posting that are then shared with affinity communities will facilitate the desired stakeholder conversations. In today’s Age Of Transparency that is gold.
About The Author
Bill Roth is an economist, Founder of Earth 2017 and is ranked as a top five sustainability blogger. He coaches business owners and leaders on proven best practices in pricing, marketing and operations that make money and create a positive difference. His book, The Secret Green Sauce, profiles business case studies of pioneering best practices that are proven to win customers and grow product revenues. Follow him on Twitter: @earth2017