It’s blunt but it sends a message. When asked to reflect on his company’s experience of implementing integrated reporting, Interserve’s group finance director, Tim Haywood, insists the “reporting” process cannot be separated from integrated “thinking”.
“An integrated report without integrated thinking is like putting lipstick on a pig,” he says. Haywood’s colourful statement is another way of saying you have to practice what you preach when it comes to integrated reporting, the reporting methodology designed to get companies thinking deeply about their long-term sustainability.
And he should know. Interserve is held out as a prime example of integrated reporting success and an early adopter. So much so, in fact, that Haywood was a panel member at a joint conference just before Christmas staged by the International Integrated Reporting Council (IIRC) and the International Corporate Governance Network, where he was on stage to discuss the company’s experience of dealing with a multi-capital business model.
Integrated reporting demands that companies think of capital differently and comprises six elements: financial, manufactured and intellectual as the first three; but perhaps most importantly, it asks businesses to see human resources, social relationships and natural resources as capital to be managed and stewarded too. Not so easy if your only interest is in short-term gains.
Integrated reporting first saw the light of day as a formal set of principles in 2013. It was the same year Interserve launched its SustainAbilities Report under the leadership of Haywood, who had joined the company just two years earlier. Haywood was recruited not just as group finance director but also as head of sustainability.
An early encounter with the then head of the IIRC, Paul Druckman, revealed that both were thinking along similar lines on multiple capitals. Interserve and Haywood have not looked back and the CFO has since become an ambassador for integrated reporting.
However, Haywood stresses the need to consider “reporting” in tandem with “thinking”. Only then do the six capitals bear fruit in terms of changed behaviours and a sustainable business model.
“It’s dangerous to overstate the impact that reporting can have,” says Haywood. “I don’t think a report on its own can transform an organisation’s behaviours and … unless there is that integrated thinking going on, then the reporting will be potentially superficial.
“The need to write a report does, in many organisations, generate the need to have something to say in that report, which then generates the need for actions to have something to say; so the reporting can prod and provoke some action but it’s not integration in itself.”
A painful process
Perhaps the most interesting statement from Haywood at the December conference was his frank admission that working on the integrated reporting project “hurt”. He says it was the data capture that caused most pain—gathering vast quantities of information created a “whole lot of practical issues”.
According to Haywood, it’s one thing to have an elegant theoretical framework for reporting. It’s quite another to figure out how to find the right data across 40 countries and 85,000 staff.
“We have millions of data items that we are capturing in order to measure our progress against targets, and that requires people to dig those bits of data out of the data mines, and the data mines are dark and deep and dangerous and people don’t want to be in there very much,” says Haywood.
This came about partly because Interserve did not buy an off-the-shelf data system but developed its own. “That’s where it hurt. We designed the system ourselves from scratch, we rolled it out ourselves and it is bespoke to our needs.
“But it nevertheless requires the cooperation of people on our hundreds of sites, and our hundreds and hundreds of contracts.” He adds: “I think this year is probably the first year where I can hand on heart look at our data and say that this is materially complete and materially accurate and the shortcomings are now minimal.
“It’s taken that long, it has almost created a shadow ERP system from first principles.” That’s a tall order for any company. And at first glance it looks like an inefficient way of dealing with the issue. After all, why not bring in consultants to do the job for you?
Make it personal
Haywood, however, is adamant that this was the only way he would recommend companies to go about launching their own integrated reporting process. Indeed, he says he wouldn’t recommend doing it any other way. Why? Because it makes the integrated reporting personal and wins buy-in, despite the difficulties.
“We made it hard for ourselves, we made it personal to ourselves,” he explains. “I think that’s a really important part of our journey. It would be easy to go to a consultant and get the off-the-shelf 101 sustainability plan and go to an IT system and get the 101 IT plan. That would cost a lot of money and it wouldn’t have anything like the resonance within the organisation that our plan has.”
He adds: “We have done all of this from first principles; we’ve done it all with our own business front and centre. Obviously we’ve listened to the outside world about what a good plan would look like, but this is our plan by our people for our business, and I think we feel very proud about it and it’s more sticky, more resilient, more wholehearted than any alternative that somebody would do for us.”
But while data capture may have been an ordeal, that was not what occupied Interserve minds at the beginning of the project. Indeed, at the outset, the obstacles were much more personal.
“You know, the biggest thing, in the early days, was the hearts and minds; it was finding a way of describing the sustainability journey and the desired outcomes to a whole array of people from different perspectives and pointing out to them why they should care,” says Haywood.
“And that is a business case that has to be described in the language of the audience you’re talking to: so, there’s a risk business case; there is a work-winning business case; there is an employer brand business case; and there is a cost-saving business case; and there’s about another half-dozen or so others that I could run through.”
The point, says Haywood, is that arguing the case for sustainability and long-term thinking is not a one-size-fits-all approach. You may want everyone to see the virtue in the decision, but management must also concede that people will do things differently.
“I’ve been very pragmatic in this journey, I don’t need everybody to take the pledge, I don’t need everybody to want to save the planet, or to make a massive impact on communities,” he says.
“As long as they sign up to our programme, I’m pretty agnostic as to their motivations and therefore it’s alright if you are a money-obsessed person to join our journey because it’ll save you money. It’s alright if you are focused on winning business to join our journey because it’ll make your customers more sticky or get you further up the tender list.
“Motivations are less important than outcomes in our journey, and I think that has gone a long way to help the message become widely accepted.”
That said, the data capture was important because Interserve felt that if integrated reporting was to have substance, it had to have measurable information underpinning its aims and objectives.
“I guess you would expect that, given I am the FD,” says Haywood. “If I champion things in the business they tend to be things that are measured, things that are accurate, things that are comparable and things that are meaningful.”
Haywood’s approach was to set targets at a range of levels: grand and not so grand. “I introduced to the company the idea of the BHAG: the ‘Big Hairy Audacious Goal’, where we’d set ourselves a target without really very much idea of how we were going to get there.
“Then there were the quick wins, which is things we knew we would be able to hit, and then the majority of our measures were targeting things in the middle which was stretching, not measured before, and we reckoned we could do a good job on improving them.
“And three or four years later, as you’ll see in last year’s progress report and at our next progress report … we’re making very good progress across a whole range.”
And that is Interserve’s integrated reporting journey: painful and consuming, yes, but moving the entire organisation towards long-term thinking in the face of current market pressures to be short term.
And while the process has no doubt been rewarding, Haywood ends with a warning. The measures are detailed and built on specificity, precision and consistency, “because otherwise you’re just talking case studies and anecdotes and flim-flam”.
“Every organisation can muster one or two decent case studies that makes it look good; not every organisation can muster data across the entire group, across a whole suite of measures that show substantial, measurable progress year on year.”