XBRL will be vital for CR reporting - but not by itself

Last night (24th March 2011) CorporateRegister.com announced the CR Reporting Awards for 2011 (results here). They also provided for a "debate" which, while I was unable to attend in person, I had the pleasure of participating in.

There were two topics:

Topic A: In future, all good CR reporting will be integrated
Topic B: XBRL will be vital for CR reporting

This second topic matched Liv Watson against Daniel Roberts (me). Liv's bio on the site reads: "Liv Watson is a Director and leads the Research and Development function at AccountAbility. She was one of the original developers of the XBRL standard, as well as a founder of the XBRL International consortium." I have had the pleasure of knowing Liv as a friend from many years. Her contributions to XBRL rank above virtually everyone else. 

Liv's (and my) full arguments are here, and comments are invited.

I thought I would also publish my arguments here. They stand alone form the general argument, and reflect my belief that we must do more to make CR (or CSR or Sustainability) reporting more effective, and that XBRL is only one way to accomplish that goal.

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There are more important issues to be addressed in CR reporting

Let me begin by stating that I believe that CR (Corporate Responsibility) reporting is no longer a nice-to-have – it is vital for capital markets to perform their primary function; the efficient allocation of capital for optimal return to investors. That means taking into account the true cost and impact of business, and that requires far more information than is currently reported.

The “Efficient Market” theory is well and truly dead, and in its place is recognition that more effective communication is required to approach even a facsimile of an efficient market. That additional communication needs to clearly demonstrate how each company impacts the “commons”. XBRL by itself does none of this, it is a boundary standard for the exchange and provision of data-level information that can be ‘trusted’. XBRL is important. But there are more important issues that must be addressed in CR reporting.

So if I (regretfully) disagree with the statement “XBRL will be vital for CR reporting”, then what do I consider vital?


1. Mandatory reporting
2. Against a regulator defined standard
3. That integrates financial and non-financial measures
4. That is audited
5. And finally, that is tagged, preferably in XBRL


1. Mandatory Reporting:

As long as CR reporting is optional, all reporting will be subject to the test: “Are we getting a better return for our money by producing this report than spending that money on other marketing activity?” Optional reporting ensures that forward looking businesses will report, cynical businesses will report what they want to report, while cost-sensitive businesses (which means most businesses) will provide limited or no reporting.

Mandatory reporting by all listed companies will ensure that the markets can view reported results from all companies by sector or size, or any other combination. Mandatory reporting is possible, requiring only the political will to make it so.

2. A Regulator Defined Standard:

Multi-stakeholder-created standards produce reporting requirements that are, by their very nature, the negotiated product of, well, stakeholders. This makes the standards malleable, with the reporting company invariably having the option of what to include and exclude. This makes CR reporting fundamentally a marketing issue. I call this the “Windmills and Daisies” syndrome, designed to create a good feeling while deflecting the reader from deeper issues.

Only when the regulators define the standard (with none of this “Core” and “Additional” stuff) will the standard be able to be applied equally. Ideally, such a standard would be the work of a consortium of regulators. In effect, an IASB for CR reporting.

3. Integrated Reporting:

Mike Krzus and Bob Eccles make the case for integrated reporting in their fine book “One Report”. They cite examples, and show how it is possible today to provide a more complete picture of a business for the investor community. Such reporting, in conjunction with a regulator defined standard, will ensure that what we now call “extra-financial information” or “externalities” can be and are reported alongside the range of information we currently use.

4. Audited CR reports:

When the external auditors review the financial statements, they do not ask the client what is in and what is out of scope, or what is material. They decide the scope and materiality. Until CR reports are subject to the same standard of assurance, the content and information provided will be viewed with skepticism. Such auditing standards already exist, so no additional standards development is required.

5. Report content tagged for easy consumption:

Once financial and non-financial information is being provided in a single integrated report, complying with a regulator approved standard, and containing audited information, it will only be a matter of time before providers and consumers of the information seek mechanisms to make it “easy” to consume. I want the information to be provided in XBRL. I am a huge proponent of XBRL, and chaired the XBRL US Steering Committee.

But only once organizations like the GRI (and others) stop paying lip service to XBRL, and build a real taxonomy, will the information be tagged in the XBRL standard. As a supporter of XBRL, my personal fear is that something “simple” will be used as a substitute, reducing the value of the information and benefits that can be achieved.

In summary, CR reporting requires meaningful, complete, accurate and trusted information that communicates a company’s true impact in a manner that allows rational decision making based on a holistic picture of the business. Certainly that information tagged in XBRL will be helpful to consumers of that information. Most important today is that the information is being collected and made available.