Human Capital Reporting: Breaking the Impasse

Human Capital Reporting: Breaking the Impasse

A third of FTSE 100 companies are withholding vital workforce related information from their annual reports, including skills challenges and employee turnover. New research from the Valuing your Talent partnership finds that this failure to adequately communicate the value of people to business is creating a clear risk to users of these company reports, such as investors.

That was the opening paragraph to a broadcast email I received from the CIPD this morning. Feeling a flicker of hope, I downloaded the executive summary immediately. Alas, the phrase, “Including skills challenges and employee turnover” should have warned me of the kind of narrow constraints that would dash my hopes. I cannot help feel the report avoids the real issues.

More than two years ago I completed a comprehensive analysis of the annual reports of one of the world’s largest companies for my book “The Democracy Delusion.” This analysis showed that over the ten year period:

  • Employee numbers had reduced by more than 110,000 people. (39%)
  • Savings in employee costs (2.014 billion) were nearly 136% of profit growth (1.487 billion)

For me there is no clearer proof of what I call “The Great Management Paradox” than this. The practice of managing people exclusively as costs rather than as assets is so pervasive that it may even threaten the ultimate viability of the market. After all, who will be able to buy the goods if large numbers of people are unable to find work security and/or face little prospect of real income growth?  There was nothing indicated in the report to suggest these issues had even been looked at, which I find disturbing at a time when there is great debate about the “living wage.”

The research was apparently broken into five distinct areas.

  • Knowledge, skills and abilities (KSA)
  • Human Resource Development (HRD)
  • Employee welfare
  • Employee equity
  • Workforce risk

Unfortunately these were not defined and the reader is left to deduce what each one means from the content of the report. And what is included in each is not necessarily self-evident.  So while KSA includes innovation, entrepreneurship and flexibility which you may expect (or not); employee welfare included ethics along with well-being and employee engagement; and employee equity, which you might envisage covering employee ownership, in fact included equality, diversity and human rights. Workforce risk apparently comprised key terms from the other categories and included talent management, succession planning and ethics.    

Equally unfortunately the report seemed to focus on the extent to which reporting on these issues had increased or decreased over the comparative period, rather than identifying the method of reporting and its relative quality.

This inevitably makes the report disappointing. In fact, despite the study showing an increase in HC reporting, the finding that, “It is debatable whether investors or other stakeholders will be able to make informed decisions” it is downright depressing.  Apart from anything else, it certainly suggests that our current direction of travel is inappropriate and the pace too slow.

If you don’t also think that, just consider this. The report itself states, “People are the only part of a business that can improve itself and they are fundamental in increasing value in it.” It continues later, “Hiring difficulties are becoming more commonplace and what are termed as ‘hard-to-fill’ vacancies are also on the rise in most economic sectors.” The need is clearly urgent. And it cannot be addressed from a mind set that persists in regarding people solely as costs.

It is thus extremely ironic that a body called Valuing Your Talent can imply this – as it does in the title of the report – without recognising, or effectively addressing it. Fortunately the ‘Every Individual Matters’ model does so. It offers you the way to both speed up your efforts and to create new standards for accounting for, managing and treating your people and building a more effective, humane working environment.

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