In November 2011, Benita Steyn and Estelle de Beer from South Africa delivered a paper, The Strategic Role of Public Relations in the Process of Integrated Reporting at the Corporate Governance and Strategic Communication Congress in Milan, Italy.
We welcome back contributor alumna, Benita Steyn, who kindly agreed to provide an abridged version of this paper for PR Conversations.
Backgrounder: Integrated reporting and strategic public relations
The collapse of the financial system and the global economic crisis of 2008-09 has been a wake-up call to the world. The realisation has dawned that a fundamental shift is needed in the way companies and their directors act and organise themselves. Actually, the financial services industry needs a whole new operating model.
Dean Nohria of the Harvard Business School says that it has become necessary to rethink/rebuild business organisations around a new set of principles and behaviour.
The most important principle is that governance, strategy and sustainability are inseparable.
Also important is stakeholder “inclusivity,” i.e., considering the legitimate interests/expectations of stakeholders to be in the best interests of the company (and not merely an instrument to serve the interests of shareholders).
An important step in the fundamental shift needed in corporate governance is the recommendation of the King Report on Governance for South Africa, 2009 (a.k.a. King III), that companies adopt “integrated reporting” (that is, integrate annual financial reports with sustainability reports).
This means economic, social and environmental issues need to be included in corporate strategy, management, reporting and assurance in the same manner as financial matters. The increased transparency of an integrated report will result in greater legitimacy and trust in the company and an enhanced reputation among its stakeholders.
How does this relate to PR?
In its latest theoretical developments and best practice, the field of PR has much to offer in bringing about the organisational changes indicated above, referring, for instance, to the principles contained in:
- the Grunigs’ two-way symmetrical (dialogic) communication, excellence and strategic management behavioural approaches (in the USA);
- the relationship and reputation management approaches (originating in the USA);
- the reflective/societal approach (in Europe); and
- the Pretoria School’s strategic approach (in South Africa).
According to Toni Muzi Falconi, the first 10 years of the 21st century, “…ignited a new beginning of the public relations profession in its day-to-day practice, conceptualization and public perception.” However, in many instances, top management remains unaware of the strategic contribution that public relations can make towards organisational sustainability, which has become the primary moral and economic imperative of this century.
What is integrated reporting?
The King III Report (2009) defines integrated reporting as a “holistic and integrated representation of the company’s performance in terms of both its finances and its sustainability.” Therefore, it is not simply an amalgamation of the annual financial statements and the sustainability report. While it is the organisation’s primary report, it could be linked to other more detailed reports and/or information on the company’s website.
The overarching objective of an integrated report is to enable stakeholders to assess the ability of an organisation to create and sustain value over the short-, medium- and long-term. Stakeholders should be able to determine whether the organisation’s governing structure has applied its collective mind in identifying the environmental, social, economic and financial issues that impact on the organisation, as well as to assess the extent to which these issues have been incorporated into the organisation’s strategy.
Interactive communication with key stakeholders is fundamental to the success of integrated reporting, as engagement leads to knowledge of the stakeholders’ legitimate interests and expectations. The information acquired through this engagement process enables the executive team to implement—and the governing structure to monitor—the organisation’s long-term strategy on a more informed basis.
What are the benefits of strategic PR role-playing in the process of integrated reporting?
From a PR perspective, it will assist in further institutionalising its strategic role, that is, make it an ongoing, accepted practice in most organisations. Although recent research indicates an increasing incidence of strategic PR role-playing in best practice organisations, in many countries/organisations it still remains PR’s technical role that is best known and widely accepted, and thus demanded by top management and other functions.
According to Toni Muzi Falconi, “The effective governance of stakeholder relationships is the new global frontier of the public relations and communication profession.” But for PR to play such a strategic role, its processes have to be fully integrated with relevant organisational processes (which in many instances are not the case).
Getting involved in integrated reporting thus provides an opportunity to fully integrate strategic PR processes (such as environmental scanning and stakeholder/issue/risk management) with those of the organisation. It will bring to top management’s attention the knowledge base and skills set that practitioners in public relation’s strategic role offer and how this can be harnessed in addressing the new organisational challenge of “integrated reporting.”
The organisational perspective
Strategic PR role-playing in the process of integrated reporting benefits not only the field of PR but also the organisation. A multidisciplinary approach is needed to provide a comprehensive picture of organisational performance.
Many stakeholders are questioning the relevance and reliability of annual financial reports as a basis to make decisions about companies, because the hard quantifiable data desired by financial analysts do not always tell the full story. A deeper understanding of risk, performance and value generation can be obtained by providing the softer, non-quantifiable environment, social and governance information.
Such forward-looking information will enable stakeholders to more effectively assess the total economic value of a company. It is thus necessary to engage the broader stakeholder community and better understand its expectations, values and norms, and what stakeholders consider material in terms of non-financial information.
Environment, social and governance information (ESG)
The environment, social and governance information (ESG) required by stakeholders can be supplied by boundary-spanning functions, such as PR through its strategic activities. For example:
- advanced media analysis, social and perception audits;
- the monitoring of trends/issues/activist groups and government decision makers on identified issues;
- the measurement of stakeholder relationship health and organisational reputation.
Even when ESG information is supplied in sustainability reports, the latter often fail to make the link between sustainability issues and the organisation’s core strategy.
Here existing theories regarding PR’s strategic role in enterprise strategy and PR strategy development can contribute to the process of integrated reporting.
Guidelines for integrated reporting
The first country to mandate integrated reporting is South Africa. The Johannesburg Stock Exchange (JSE) has made it a requirement for listed companies, effective 2010. Because there is no globally recognised framework for measuring/reporting on non-financial ESG performance, the Integrated Reporting Committee (IRC) was formed in South Africa. The IRC presented its integrated reporting framework/guidelines in January 2011, followed by the International Integrated Reporting Committee (IIRC), which subsequently released its discussion paper on September 12, 2011.
Based on an analysis of the IRC guidelines (specifically Section 3 that outlines elements to be addressed in an integrated report), Estelle de Beer and I presented the findings of our exploratory research in Milan; namely, that:
PR can contribute to the process of integrated reporting (and its outcome, the integrated report) through three strategic PR processes:
1. Environmental assessment.
2. Contribution to enterprise strategy development (i.e., to the sustainability dimensions of strategy).
3. Development of PR strategy (deliberate and emergent).
If interest is demonstrated, Estelle de Beer and I would be happy to provide more information on these three processes.
Benita Steyn is a part-time lecturer at the Cape Peninsula University of Technology in Cape Town, South Africa, where she teaches on its web-based Master’s in Public Relations Management program. Her research interest is strategic public relations, i.e., the contribution of PR at the top management level.
Benita Steyn recently began a ‘gap’ year in which she plans to travel abroad extensively—for leisure, not for work!