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George Serafeim, Andrew Knauer, Stathis Gould  | 

Transparent investor engagement and corporate disclosure influences the types of investors an organization might attract. The kinds of investors who own the company’s shares can ultimately end up affecting its decision making and value. For example, companies that provide earnings guidance tend to attract disproportionately large numbers of momentum investors—i.e., those with a great deal of small positions and very high turnover—and the stock prices of such companies tend to experience larger-than-average volatility.

According to Don Chew, editor of the Journal of Applied Corporate Finance, “If you hold up quarterly earnings as your main goal, you will attract investors who care mainly about the next quarter’s earnings.” (“Drexel University Center for Corporate Governance Roundtable on Risk Management, Corporate Governance, and the Search for Long-term Investors,” Journal of Applied Corporate Finance, Fall 2010).

Earnings guidance does little or nothing to increase the company’s long-term value, and probably contributes to short-term thinking. According to Joseph Kaeser, then-CFO of Siemens who is now the CEO, “volatility benefits short-term shareholders.” Therefore, a number of companies, including GlaxoSmithKline, Unilever, and General Electric, have ceased to provide earnings guidance. In many cases, such a move refocuses the company on a long-term and customer-focused perspective, allowing a firm to deliver a steady growth and profitability in the long-term and allowing materiality to be determined in favor of long-term owners.

Unilever, a proponent of an “integrated governance” approach to sustainability (as defined in a recent report commissioned by the UN Environment Programme Finance Initiative), has a Sustainable Living Plan that clearly focuses on sustainable growth over the long-term. Paul Polman, CEO of Unilever, reinforces the Unilever focus and its corresponding effort “to attract the right longer-term shareholders to our share register.”

Effective integrated reporting should take the engagement between investors and companies to the next level so that the constituent elements of market value are better understood—thereby bridging the gap between accounting and market value—but also ensuring that this value creation is sustainable.

Research of Shire PLC (Attracting Long-Term Investors Through Integrated Thinking and Reporting: A Clinical Study of a Biopharmaceutical Company, Journal of Applied Corporate Finance, Volume 26, Spring 2014), by Andrew Knauer and George Serafeim shows that company leaders have the ability to influence who buys their shares, and if necessary, change their base of shareholders. The research of Shire complements other research that has statistically analyzed a large number of companies over time to establish a causal link between a company’s actions and its investor base. Additional research by George Serafeim of more than 1,000 US companies found that those companies practicing integrated reporting tend to attract longer-term investors after initiating such reporting practices (Integrated Reporting and Investor Clientele).

A research focus on a single company shows in greater depth what a company can actually do internally to help influence an investor base with a longer-term orientation.

Shire developed and communicated a sustainable strategy to limit the effects of negative externalities that have greater potential to affect value creation, while preserving other forms of capital. The research highlights Shire’s value creation process, which relies on various resources (water, minerals etc), people (skills and capabilities of individuals), and financial capital. These resources support the development of Shire’s capabilities, such as physical, intellectual, and social capital. In the process of creating products and services, which lead to revenues, Shire generates positive and negative externalities—such as environmental pollution, which imposes a societal cost not reflected on the company’s financial statements. Shire’s sustainable strategy deals with various aspects of both its positive and negative externalities.

What practices did Shire implement to facilitate integrated thinking? (as defined in the International Integrated Reporting Council’s International Integrated Reporting Framework)

  • Top leadership commitment
    • When creating its first corporate responsibility (CR) report in 2003, Shire established a CR Committee led by the CFO, which signaled the mainstreaming of integrated thinking and the integration of sustainability issues into the core of the business and decision making. The CFO later became CEO and continued a strong commitment to the sustainability strategy.
    • In 2006, Shire tied executive compensation to both financial and non-financial performance. The performance scorecard and key performance indicators for 2008 are represented in the table below.
  • Diffusing integrated thinking and Shire’s sustainability goals throughout the organization
    • Achieved through instilling responsibility and a culture based on strong values and beliefs—using a system called BRAVE: bold, resilient, accountable, visionary, and ethical—at every level of the organization. The rebranding, and cultural and values program, was designed to empower individuals and diffuse sustainability efforts across all functions, staff, and locations. The mainstreaming of sustainability in this way lead to staff thinking and acting differently without even realizing that what they are doing is corporate responsibility.
  • Greater transparency than competitors in reporting its policies and practices.
    • Since the early 2000s, Shire consistently provided more information about its policies and performance in relation to recruitment, development, and attraction of talent; corruption and bribery; energy, water, and waste management; and, more recently, its health and safety programs and supply chain quality management initiatives.

Shire’s Balanced Scorecard Approach

1. Financial targets (40% of weighting)

1.1 One year revenue growth

1.2 Net sales and contribution of each business

1.3 Management of expense ratios

2. Customers (15% of weighting)

2.1 Improve customer care and customer service levels across the entire business


3. People and capabilities (15% of weighting)

3.1 Employee retention

3.2 Programs to support leadership and career development for high potential talent

4. Operational effectiveness (30% of weighting)

4.1 Successful product filings, approvals, and launches

4.2 Determination of strategies for therapeutic areas

4.3 Strategies for investment in group infrastructure


Integrated thinking and transparency—a significant impact on Shire’s investor base

For Shire and its competitors, the research highlighted the difference between the percentages of shares held by dedicated holders (i.e., long term) and by transient holders (i.e., short term) for each year from 2006 through 2011. The result for Shire was that relative holdings of dedicated holders—although outnumbered almost four to one by transients in 2006—increased steadily during the six-year period of the study. By the end of 2011, Shire’s dedicated holders outnumbered its transients, which is unusual for a public company.

The institutional shareholder base of Shire’s competitors became more short-term oriented over time. The attraction of longer-term holders appears to reflect, at least partly, changes in the company’s strategy and reporting practices, which started in 2006. During the same period, the organization did not change other factors, such as major governance provisions, or consistently increased dividend payouts. During the period, Shire continued to outperform its competitors with a stock price appreciation of around 200% (against 10% for an index of competitors).


For more information on Integrated Reporting, go to The website includes research by the IIRC and Black Sun of the three-year IIRC Pilot Programme, Realizing the Benefits: The Impact of Integrated Reporting.

George Serafeim

Associate Professor of Business Administration, Harvard University School of Business

George Serafeim is the Jakurski Family Associate Professor of Business Administration at Harvard Business School.

Andrew Knauer

Senior Analyst, Just Capital

Andrew Knauer is a Senior Analyst at Just Capital, where he leads the analyst team and contributes to core research activities related to corporate sustainability and ‘just’ performance.  Prior to Just Capital, Andrew authored cases, book chapters, and articles on sustainability strategy and reporting as a Research Associate at Harvard Business School.

Stathis Gould

Director, Member Engagement and PAIB

Stathis Gould is responsible for IFAC member engagement and leads IFAC’s advocacy for professional accountants working in business (PAIB) and the public sector. A key element of his work is developing thought leadership and guidance in support of enhancing the recognition of and confidence in professional accountants as CFOs, business leaders, and value partners in the context of sustainability/ESG, data and digital transformation, and other emerging business trends and issues.

Before joining IFAC, Stathis worked at the Chartered Institute of Management Accountants (CIMA), where he was responsible for planning and overseeing a program of policy and research that promoted and developed management accountancy. Prior to serving the accountancy profession, he worked in various roles in the private and public sectors in the UK. There, Stathis delivered financial and performance management in the National Health Service and worked for a technology company responsible for delivering the localization of software and content across the globe.

Stathis holds a BA in European Business Studies, an MBA (with distinction), and a postgraduate certificate in Environmental Management, Economics, and Policy. He is a member of the Institute of Management Accountants.