Danish healthcare group Novo Nordisk, which is also listed on the New York Stock Exchange (NYSE) has issued an integrated annual report since 2004. As a 'long-time' reporter, we wanted to find out about their experience and the lessons learnt that could be helpful to new reporters in South Africa. Susan Blesener, Director, Corporate Accountability at Novo Nordisk, answered our questions.
Q: Novo Nordisk was among the first companies in the world to write an integrated annual report. What prompted this?
A: Our integrated annual reporting began in 2004 as a request from our Board of Directors. They preferred to review all aspects of performance together. At Novo Nordisk's 2004 Annual General Meeting, shareholders adopted an amendment to the company's Articles of Association to specify in the objectives that the company will "strive to conduct its activities in a financially, environmentally and socially responsible way". The process of integrated reporting reflects what shareholders have agreed to as the company's objectives.
Q: What changes in your integrated reports have you seen over the years?
A: We are continuously learning and improving. Our reporting is the external expression of the way the company is managed, so the measurement of results is very important. Hence, we are constantly seeking incremental improvements to environmental, social and management accounting. As a pharmaceutical company we are particularly focused on the development of social accounting. Measuring the social benefit of the products that constitute our core business is important. This is also quite difficult – the real benefits are accrued over a period of 20 to 40 years in terms of longer life and fewer complications of diabetes, such as blindness or amputations.
Initially, the non-financial content of our integrated report was closer to what traditionally has been reported in a sustainability report. As our management processes have become increasingly integrated, what we report in our integrated report is more closely linked to our internal strategies that are co-created with external stakeholders. The way we interact with stakeholders has evolved and this has also caused our reporting to evolve. The way that we work with materiality is changing as well. We are extremely pleased to see proposals for integrated materiality coming forth as part of the International Integrated Reporting Committee's (IIRC) process.
Over time, we have become more rigorous about data quality. Our Board wants executive management to use non-financial information in decision-making, but this is only possible if everyone has confidence in the quality of the data. Our Board wants us to have similar standards for the quality of financial and non-financial data, and this impacts what we report.
Q: How many pages are in your latest report, and what other reports did you produce (online and paper)?
A: Our most recent integrated annual report (2010) was 112 pages, which included both our financial and non-financial statements. The consolidated financial statements are prepared in accordance with IFRS as issued by the IASB, as well as in accordance with IFRS as endorsed by the EU. The statements are also in accordance with the disclosure requirements for Danish listed companies. The consolidated non-financial statement is prepared in accordance with the Danish Financial Statements Act section 99a, which requires reporting on strategies and activites regarding social and environmental responsibility. Our commitment to produce a very concise report means that we are rigorous about whether a topic is truly material to making an informed assessment about our company.
In addition to the integrated annual report - which is the legal document filed with the Danish Corporation Commission and the NASDAQ OMX Copenhagen stock exchange - we produce an online report on our website, which supplements the audited and assured annual report by providing additional background, context and data. Some of the content on this site represents our UN Global Communication on Progress report, and some of the content is information reported against the Global Reporting Initiative (GRI) standard.
The only other report we produce at the corporate level is a 20(F) report for US regulators, which is essentially the same as our integrated annual report. This fulfils our reporting obligations as a foreign listed company on the NYSE.
We are conscious that in just over 100 pages, our annual report captures only the most important information as determined from a global perspective. We provide templates and tools for our subsidiary businesses to do their own reporting, and several do.
Q: Who is responsible for the integrated report?
A: The internal governance process is led by a steering group that consists of the CEO, CFO and our Chief of Staff. The areas the Chief of Staff is responsible for include human resources, quality control, internal audit, and stakeholder engagement.
Ultimately, it is the Board of Directors that signs off on the report. The Audit Committee oversees the audit and assurance processes and reviews the financial and non-financial statements in detail.
Q: What benefits has Novo Nordisk gained from integrated reporting?
A: We probably spend more on reporting than we would if we did not do integrated reporting, but we believe the process makes us a better run company. Our objective is to increase internal and external accountability for achieving performance objectives across all dimensions of performance. It's not easy to implement and manage an integrated strategy. It involves what is often an unprecedented collaboration among accounting, communication, investor relations, legal and regulatory affairs, sustainability, public affairs and operations. A benefit of this improved collaboration is better decision-making. Integrated reporting makes this process publicly visible.
Q: What have been the biggest challenges to overcome in your reporting experience?
A: It's not about the report - it's about how the company is managed. Changing the way a company is managed is not an easy task. Managing an integrated strategy for a global business is not easy.
The more embedded sustainability objectives are, the more difficult it can be to change or add to objectives. This means we're unable to add new indicators quickly; the process is quite lengthy. We don't change strategies or the way we manage our business quickly, and we are committed to reporting in a way that accurately reflects the way our company is managed.
Q: How has the process of integrated reporting changed the way the business is run on a day-to-day basis?
A: In some ways, you could say that Novo Nordisk was founded as a company that embraced integrated management. The company was founded by a doctor who was committed to helping save the lives of diabetics in Europe who had no treatment options before our company brought the process of insulin production from North America. The company has grown and succeeded because social responsibility and commitment to care has been balanced with financial responsibility. By delivering competitive financial results, we have been able to grow and bring new, innovative treatments to more parts of the world.
We continue to consider ways to improve how we manage multiple dimensions of performance. Beyond integrating external reporting and strategies, over the years we've also integrated internal management reporting, changed the way we train managers, and made aggressive, long-term commitments to alternative energy.
Our approach to our business has also changed over time as we've become a truly global business. With the ability to provide treatment globally also comes a different level of responsibility to make medicines accessible to patients throughout the world.
Q: Would you say that 'integrated thinking' is firmly embedded in operations and management?
A: We have an internal audit process that assesses the degree to which our internal values-based management system, including our commitment to the triple bottom line principle, is actively put into practice throughout our company. As part of this process, thousands of employees are interviewed each year. The purpose is to ensure that 'integrated thinking' is not something that only happens at headquarters or in certain parts of the business. All managers are held accountable for managing multiple dimensions of performance, and all employees should know how what they do relates to Novo Nordisk's commitment to the triple bottom line principle.
Q: Has integrated reporting changed the way management is incentivised?
A: Executive management compensation is tied to financial and non-financial targets. This is not due to integrated reporting, but due to the company's commitment to manage all dimensions of performance responsibly.
Q: How have investors and other stakeholders responded to your integrated reports?
A: Investors are particularly supportive of all dimensions of performance reported together. We find that the integrated format is also very helpful in making our business and management style accessible to potential employees and business partners that are interested in understanding how we work.
We know our integrated report does not include everything that stakeholders might want to know, so we are constantly striving to improve the way we link information in our integrated report with additional information reported online. Policy and process information is generally reported online.
Q: What do you think of the IIRC's Discussion Paper?
A: We are very supportive of the idea of an integrated reporting standard and so we have been involved in the IIRC process.
The Discussion Paper describes integrated reporting as bringing together information "in a way that reflects the commercial, social and environmental context". Because integrated reporting is about value, it is more than a communication process. The process of assessing multiple dimensions of value has led us to push the boundaries of non-financial accounting. To integrate reporting and performance management truly, we believe that accounting systems and standards must evolve to capture better social value and environmental externalities. We regret that the IIRC Paper doesn't address the need for accounting innovation.
We are pleased that the IIRC process has created a dialogue about materiality frameworks for integrated reporting. Integrated reporting should be more than combining or stapling together financial and sustainability reports. Integrating materiality frameworks is one key to truly transforming corporate reporting for the benefit of all report users. asa
The Novo Nordisk report is available on www.novonordisk.com. asa
Leigh Roberts CA(SA) is Project Director: Sustainability and Integrated Reporting, SAICA, and is a member of the Integrated Reporting Committee Working Group.