Why GE’s Integrated Report Makes A Powerful Statement

“We are just beginning our transformation as the Digital Industrial Company.” So says General Electric Chairman of the Board and CEO Jeffrey R. Immelt in the “GE 2015 Integrated Summary Report” published on March 14, 2016. This marks the first time the company has published an integrated report and making it one of the few U.S. companies (e.g., Clorox, Entergy, and Jones Lang Lasalle) to do so.

But GE joins a growing number of approximately 1,000 companies around the world, all of whom are doing this on a voluntary basis. Not to mention around 400 companies listed on the Johannesburg Stock Exchange where it is a reporting requirement on a comply or explain basis, making South Africa the only country in the world to have taken this bold step. This was the result of the substantial and visionary reforms introduced by Professor Mervyn King, Chairman of the International Integrated Reporting Council (IIRC) through the King Report on Corporate Governance. Commenting on GE’s integrated report Professor King said, “I congratulate GE and their board for this ground breaking report in the U.S. GE introduce their report as, ‘Concisely linking strategy, performance, board oversight, compensation and sustainability in a single document.’ This is precisely the ambit of the successive King Committee recommendations and my vision for the International Integrated Reporting Framework.”

In an unusually long and informative “Chairman’s Letter” Immelt discusses the moves that the company is making to become a major player in the “Industrial Internet,” offering “the next great wave of productivity for both our company and for the customers we serve.” As part of this transformation, the $130 billion high-tech industrial leader decided to sell its massive GE Capital business (representing about half of the company and around 60% of its earnings growth from 1990-2005), completed its acquisition of the French industrial giant Alstom’s power and grid business (its largest industrial acquisition ever), and is now making big investments in China (with near-term goals of $10 billion in revenues and $10 billion in sourcing). “We are a company that invests in broad industrial transitions, and they don’t come much bigger than the full application of data and analytics to machines and systems,” wrote Immelt.

While GE is a common household name around the world, “integrated reporting” is a term still new to most people and one that is only beginning to be understood. The fact that GE has issued an integrated report has generated a lot of excitement in the business and investment communities among those who see integrated reporting as the next natural step in corporate reporting. One factor driving this is the growing significance of the “knowledge economy” and the importance of human and intellectual capital. Another is increasing concern about environmental issues (e.g., climate change and scarce resources) affecting the planet’s natural capital. A third is the recognition of political instability arising from the failure to address social issues (e.g., human rights and vast income inequalities within and across countries) that diminish social and relationship capital. Traditional financial reporting was designed for a different age when financial and manufactured capital were the major concerns.

The increasing importance of these other capitals might lead one to believe that integrated reporting is basically more reporting. This is decidedly not the case, as is clear from the example of GE. In introducing the report, Chairman and CEO Jeff Immelt states:

Public company reporting has become so complicated that what matters to investors can get lost. Our priority is to provide meaningful information that all investors can readily access. For investors to make investment and voting decisions, we don’t believe that more information is necessarily better. Instead, we’ve challenged ourselves to provide better information. Over the past several years, we have already been enhancing our reporting in response to feedback from investors, and they have told us how much they like it. This year, we are taking it even further with our new Integrated Summary Report.

Those familiar with integrated reporting will wonder about the extent to which GE’s integrated report follows the IIRC’s “The International <IR> Framework.” This appropriately concise 36-page framework, published in December 2013, is based on seven guiding principles and nine content elements. In general, GE’s report measures up well in a number of ways, such as for the guiding principles of strategic focus and future orientation and conciseness. Improvements can be made in materiality (virtually no discussion), stakeholder relationships (briefly mentioned only once) and connectivity of information (the relationships between financial, environmental, social, and governance performance). In fairness, GE makes it clear in a diagram of its “Annual Prioritization Process” (p. 62) that stakeholder engagement is how the company identifies the business imperatives upon which it selects its environmental, social, and governance priorities. It also monitors the evolving needs of its stakeholders through its expertise and technology in the context of corporate governance.