Integrated reporting and changes in management control systems in large Japanese companies

• Pages: 397-409
• DOI: https://doi.org/10.1108/CG-06-2020-0238
• Published date: 09 December 2020
• Date: 09 December 2020
• Subject Matter: Strategy,Corporate governance
• Author: Masahiro Hosoda

Integrated reporting and changes in

management control systems in large

Japanese companies

Masahiro Hosoda

Abstract

Purpose –This study aims to examinethe integration of integrated reporting (IR) intothe formal control

systems (FCSs) early adopters use to implement IR, and investigate whether it drives informal control

systems(ICSs) change at this early stage.

Design/methodology/approach –A case study was conducted in seven large Japanesecompanies.

Data were gathered through semi-structured interviews and e-mail exchanges with the managers

responsible for developingintegrated reports in Japanese companiesthat excel in IR practices. Content

analysiswas adopted to analyze the data.

Findings –The results showed incremental changes to the integration of IR into FCSs. However, the

integration may not cause radical changes to ICSs because all sample companies recognized the

importance and necessity of embedding integrated thinking in all levels of companies to put it into

practicefor value creation over time.

Originality/value –This study contributes to IR research from an internal corporate perspective.

Specifically, this study provides new knowledge on the relationships between IR and MCSs. This

research also gives new insightinto operationalization and internalization of sustainability in terms of IR

and MCSs in companies,not only in Japan, but also worldwide.

Keywords Integrated reporting, Integrated thinking, Management control systems,

Formal control systems, Informal control systems

Paper type Research paper

1. Introduction

Since 2003, many Japanese companies have engaged in corporate social responsibility

(CSR) and sustainability activities and released CSR and sustainability reports (Fukukawa

and Teramoto, 2009;Fukukawa and Moon, 2004). Because of increased demand to

disclose the link between financial and non-financial information on how firms create value,

many Japanese listed companies have turned to integrated reports since the International

Integrated Reporting Council (IIRC) developed the framework (KPMG Japan Integrated

Reporting Center of Excellence,2019).

Integrated reporting (IR) is “[a] process founded on integrated thinking that results in a

periodic integrated report by an organization about value creation over time and related

communications regarding aspects of value creation” (IIRC, 2013, p. 33). Integrated

thinking is “the active consideration by an organization of the relationships between its

various operating and functional units and the capital that the organization uses or affects”

(IIRC, 2013, p. 2). It “leads to integrated decision-making and actions that consider the

creation of value over the short, medium and long term” (IIRC, 2013, p. 2). IR aims to

“support integrated thinking, decision-making and actions that focus on the creation of

value over the short, medium and long term” (IIRC, 2013, p. 4). IR is a new framework for

Masahiro Hosoda is based

at the College of

Humanities and Social

Sciences, Ibaraki

University, Mito, Japan.

Received 17 June 2020

Revised 19 September 2020

Accepted 2 October 2020

DOI 10.1108/CG-06-2020-0238 VOL. 21 NO. 3 2021, pp. 397-409, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 397