Bob Laux has long been a fixture at financial reporting conferences. He is a financial reporting guru. And then, a couple of years ago, at a panel event in Los Angeles he surprised everyone by saying he was ‘disgusted’ at the state of the accounting profession. He was saying it for effect. But he needed to shout loudly to draw his audience’s attention to his view that financial reporting in the US had become a rolling mass of infrastructure which didn’t really serve its users very well.
Earlier this year he joined the International Integrated Reporting Council as its North American Lead, with, as he puts it, a ‘goal of trying to make integrated reporting mainstream in North America’.
And when we talked recently, he talked about how ‘discouraged’ he was by his profession, the accounting profession. ‘We are a great profession but we can do better’, he said. ‘In the US we have periodic reporting, the 10Qs and 10Ks, and a tremendous amount of effort is put into those documents. There is a lot of infrastructure and controls on top of them. And day after day I would be saying to myself, is this it? Is this my contribution to this great profession we are in? And a lot of us think we can do better. It is a huge infrastructure. It is rules. It is a lot of disclosure, documents which run to well over a hundred pages that I don’t think too many people are reading and may be not their first source for investing’.
For him this giant infrastructure is ‘the big elephant in the room’. So how could he combat this massive obstacle? His answer is that ‘we are just going to have to be smart about it’. And that, for Laux, means integrated reporting, reporting based on the different capitals which underpin value creation of a company. ‘There are a lot of challenges’, he says, ‘but I am confident that now is the right time. We have been talking about this type of reporting for over two decades now. We have come a long way. But now is the time for action’.
In particular he feels that many others share this view. ‘Many people in business, investors and society generally feel that companies need to have a long-term view. We need to get out of our short-term mentality and in business the short-term mentality is the quarterly earnings game, and it’s just not productive. I think we all know that and we all need to come together and find a solution’.
And for him that solution is integrated reporting and the integrated thinking, of all the elements which make up corporate performance and value creation, which can open up a long-term, sustainable, view. It is a growing trend.
Last year the largest and most influential pension fund in the US, CalPERS, called on company boards to ‘provide an integrated report that puts historical performance into context and portrays the risks, opportunities and prospects for the company in the future’. He appreciates that companies can find the process of putting integrated reporting into place difficult. But he provides encouragement. ‘The good thing is that when you go through the exercise you start learning: this is what I need to do differently; this is how I need to think about a multi-capital view of the world; this is how I need to cut down on my silos; this is who I need to have in the room; this is how I can be clearer about my company’s strategy; this is how I can be clearer about execution on strategy’.
But he is also clear that it will be a mighty task. ‘I love being an accountant’, he said, ‘but we are difficult people to change. But we all want to do the right thing. That is why a lot of us became accountants’. Bringing about the cultural and attitudinal changes which will lead to integrated reporting being mainstream to North American business is a tough call. Laux understands that. But he sees it as being possible. ‘I’m excited’, he said. ‘I’m hopeful’.