Building stakeholder confidence with integrated reporting

The move to integrated reporting

For many years, most universities have kept annual reporting to a minimum, primarily focussing on financial statements.

They report to different regulators using mainly boilerplate or template approaches.

While the regulatory burden is high, the current reporting practices do little to help universities demonstrate the value that they create for students, staff, the economy, and society.

But some institutions have found another way to communicate their story: integrated reporting.

Integrated reporting engages all stakeholders, and allows a detailed, consistent, and transparent articulation of an institution’s performance and prospects.

After all, it is these prospects that lenders are interested in. They want a robust and clear forecast about the short, medium and long term sustainability of an institution.

The Office for Students (OfS) has requested that forecast-borrowing should be included in the new interim forecast report.

Therefore, having an integrated report, setting out the trajectory for all university resources (not just financial), could support applications for funding and conversations with lenders.

The need for integrated reporting

Integrated reporting starts with the purpose, strategy and resources (often referred to as the capitals) possessed by an organisation.

It seeks to articulate how the organisation uses those resources to create value, and deliver outcomes aligned to its purpose and strategy.

Back in 2019, the OfS noted that the sector predicted financial forecast improvements in coming years. These were due in large part to ambitious assumptions about growth in student numbers.

The OfS proposed to “closely monitor” providers that were most reliant on student number growth to meet their financial viability and sustainability.

However, now, in 2020, it is not just the OfS who will be watching the sustainability of our institutions over the coming months:

• Investors will want to understand our short, medium, and long-term prospects.
• Students (and parents and carers) will want to know if they can complete their course with meaningful outcomes.
• Staff will want to know whether their future and livelihoods are at risk.

Thankfully, the short delay in OfS financial reporting timelines offers a good opportunity to reflect on what your university is reporting to its stakeholders. This includes everyone from regulators to investors, strategic partners to students, investors to staff.

Are they all getting a consistent and credible message? Is your view about what matters (materiality) aligned with theirs?

This concept of materiality, when discussed in relation to reporting, looks at how we capture what matters to whom.

It goes beyond the simple financial definition of materiality. Instead, it considers what is material in ensuring that the organisation can deliver all of its results over time, for the benefit of all stakeholders.

And the answer?

People.

Higher Education is a people business

In many organisations, a substantive proportion of financial capital is payment for its people, or human capital. Universities are no exception.

Through our people, our universities build and sustain:

• Intellectual capital (knowledge)
• Social capital
• Relationship capital

More importantly, human capital drives innovation, creativity, responsiveness, and many other attributes of competitive advantage.

I wrote about this issue in a previous blog post on using our strategic resources better, and a similar post which asked whether knowledge exchange can help us demonstrate the wider value of excellent teaching.

Undoubtedly, Higher Education is a people business. Our people (students, staff and governors) are regularly and rightfully cited as our biggest asset.

But often, the main reference to staff in university reporting is cost.

Integrated reporting outside the sector

In an example from outside the sector, the approach by The Crown Estate is somewhat different.

They report that:

“Our talented and committed team are central to our success. This year, we developed our dedicated People Strategy to ensure we have a compelling proposition for our people and the right approach to attracting, retaining, and investing in talent. This will be a key component of delivering our Corporate Strategy.”

This is not just a marketing statement.

Joining up, or integrating, the People Strategy with corporate KPIs is essential in enabling the Board and Executive Team to understand whether they have the right skills and expertise to deliver the outcomes they desire.

The Crown Estate goes on to consider materiality, asking what their people think is ‘material’ to being a sustainable organisation. This is an approach many who undertake integrated thinking and reporting find essential in telling their story.

And the Crown Estate is not alone in setting a good example.

Many organisations have a sophisticated approach to considering materiality, primarily linked to their stakeholders, but also to risk.

For example, the Duchy of Cornwall and ACCA both actively engage with stakeholders to determine what is material to them.

Why doesn’t the same occur, for the most part, in the education sector?

Integrated reporting inside the sector

The OfS says that, “It is for the provider to judge ‘materiality’ [in its financial reporting terms], but it must act reasonably.”

However, they also make it clear that materiality is not a question of financial value alone.

We know that a very small number of universities consider and report on materiality in this broader sense, though most often in relation to risk, and mapped to their stakeholders.

Perhaps, this is only completed by a small number of universities due to the efforts involved.

After all, understanding materiality in the context of your stakeholders means that you have to understand who your stakeholders are, and how you engage with them.

Admirably, the Newcastle University integrated report does just that in pages 22-23, thereby offering a strong example from within the sector.

It is an example that many universities could learn from because…

Integrated reporting builds confidence

Ultimately, a governing body needs assurance that external and internal stakeholders have a high degree of confidence in the organisation.

This requirement supposes that the governing body understands the stakeholders of its university, and has clarity about what is material to them. Reporting on this materiality is important for all stakeholders in building confidence and trust.

Advance HE’s recent governance e-survey spoke with over 25 institutions. A benchmark of 82% was given in response to the statement, “There is effective communication to, and from, the governing body with key stakeholders.”

However, with lowest scores at a mere 11% confident, there is clearly more to be done.

How to establish integrated reporting

Our governing bodies should be having discussions about the importance of:

• Leadership development
• Employee engagement
• Morale
• Productivity
• Innovation
• And other material issues which can demonstrate the risk to successful student outcomes, investor, or regulator interests.

Equally, the institution shouldn’t be reporting solely on metrics such as staff costs. These provide little real strategic insight about the value of staff, or their impact on outcomes.

Admittedly, in the aforementioned e-survey, interpreting the word ‘effective’ is a judgement.

Therefore, during these challenging times, I propose three questions for governing bodies and executive teams to consider:

1. How much do you understand your stakeholders, and how do you engage them beyond marketing?
2. What is material to key stakeholders, including regulators, investors, students, strategic partners, and staff?
3. What do you want regulators, investors, and other stakeholders to know about you at this time, beyond just financial, and how can you demonstrate that?

In summary, integrated reporting is facilitated by integrated thinking, and the organisation’s understanding of the value it creates for its stakeholders.

This is not easily done. It requires research and consultation.

But once integrated reporting has been established, you will be rewarded with a welcome increase in stakeholder confidence.

Kim Ansell is the Senior Advisor and Managing Consultant for Advance HE. You can discuss the topic of integrated thinking and reporting and much more at the Advance HE Governance Conference on the 20 November 2020.