Workforce performance measures to be put at the heart of business productivity
The long-term growth potential of organisations and the economy are being hampered by a lack of consistency in the measurement and reporting of human capital information, contributing to long-standing problems of short-termism in many firms and sectors.
This was one of the clear messages from speakers at an event bringing together the business secretary Vince Cable, Stephen Haddrill, CEO at the Financial Reporting Council, Helena Morrissey, CEO at Newton Investment Management and chair of the Investment Association, and Doug Baillie, chief human resources officer at Unilever to discuss the role of human capital reporting in driving a more long-termist approach to the delivery of business performance and productivity.
The event marks the launch of a newreport from the Valuing your Talent initiative, comprising the CIPD, CIMA, UKCES, Investors in People and CMI, which considers barriers to human capital reporting from an investor and other external stakeholder perspective. It explores investor views on the value and availability of human capital metrics (HCM), whether consistent reporting on agreed core people data would improve understanding of workforce potential and challenges, and barriers to better reporting practice.
Business secretary Vince Cable said: “I am determined to tackle the short-term investment culture that helped to cause the 2008 financial crash. That’s why I commissioned John Kay’s review of the equity markets, and why we’ve given priority to implementing his recommendations. We have comprehensively reformed reporting frameworks, enhancing the focus on long-term strategy and removing the requirement for mandatory quarterly reporting to encourage companies and investors to take the longer view. We have overhauled the governance of executive pay, empowering shareholders to ensure companies’ pay structures are genuinely linked to longer-term performance. We have supported the development of the Investor Forum to make collective engagement by investors more effective. And we have made good progress on boardroom diversity.
“I know that we now have laid the solid foundations to build a real shift away from the ‘quick buck’ culture that wrought such damage in the past. The report is a very interesting contribution to the debate on where to go next, focusing on reporting standards around people-led performance to ensure that business investment is maximised and productivity is improved upon year after year.”
Peter Cheese, chief executive, CIPD said: “There’s a clear ‘chicken and egg’ situation here. Organisations are ad-hoc and inconsistent in their reporting on human capital which means investors and other external stakeholders don’t have faith in the data and don’t see the need to ask for more. But because the data isn’t being requested, firms don’t put a consistent effort into reporting people-based data; productivity challenges go unresolved and critically important intangible assets, such as the workforce, continue to play second fiddle to more tangible assets when investment decisions are made. We need to build a more common language amongst businesses, investors and other stakeholders to capture the impact of people and culture on long-term business performance. This conversation starts with having the right data in place; employers must start to place value on their talent or the human capital conundrum will remain unsolved.”
Also attending the event was Charles Tilley, chief executive, CIMA, one of the key partners in the Valuing your Talent programme. He said: “For human capital to be fully and effectively valued in business decision making we must achieve a change in mindset, competency and culture within business at all levels. We must change mind sets through a recognition that data on people, performance and behaviours are key to business success. The competence of finance, HR and other professionals needs to be developed to recognise and act on this insight. CIMA’s Global Management Accounting Principles provide a framework to do this and build culture, leveraging financial and non-financial data to drive integrated thinking and behaviours within the organisation.”
Doug Baillie, chief HR officer for Unilever said: “People are our most precious resource and the effective investment and management of them is critical to the continued success of Unilever. By adopting human capital reporting we are increasing our accountability and presenting a more transparent and coherent picture to our stakeholders on the health of our business. Having an accurate picture can also lead to competitive advantage by unlocking the full potential of our people, making the case for its adoption a resounding one.”
Peter concluded: “Human capital reporting is often misunderstood. It’s not simply about looking at individuals and the value that they provide per head, per hour – or reducing people to numbers on a balance sheet. It’s about a much more fundamental recognition that the people we employ, the ways we manage and develop them, how we organise our businesses and the cultures we build within them are all critical to measuring and driving business performance. In the first instance, developing a consistent way of recording and reporting the small number of key metrics we’ve focused on in our reports would start to help employers and investors to build a clearer picture of the intangible factors that play such an important part in delivering long-term success.”
The event and report are part of a concerted effort by the CIPD, with a number of partners, to raise awareness of the importance of human capital reporting. This wider ‘Valuing Your Talent’ initiative is a collaborative research and engagement programme between the CIPD, CIMA, the UKCES, Investors in People and the CMI to help raise understanding and capability in the measurement of and insight into how people drive value in organisations, and to encourage better practice, mind-set and visibility in people and organisation development.
