One in three FTSE 100 annual reports leave investors in the dark
A third (33%) of FTSE 100 companies are withholding relevant information from their annual reports and painting an inaccurate picture of opportunity and risk, according to a new research report from the Valuing Your Talent partnership.
Valuing your Talent: Illustrating your company’s true value, shows that many organisations are failing to include vital workforce related information, including health and safety incidents, data breaches, skills challenges and employee turnover in their annual reports, creating a clear risk to users of these reports, such as investors.
In response, the Valuing Your Talent partnership – which brings together CIMA, CIPD and CMI – is calling on organisations to measure and disclose the impact and contribution of people on business performance so both they and key stakeholders can make informed decisions based on an accurate picture of opportunities and risk.
Using a variety of methods, the report assesses the current standard of human capital reporting by FTSE 100 companies by measuring if and how corporate reports have evolved between 2013 and 2015. It found that:
• The space dedicated to people welfare in some reports has reduced significantly with 2 in 5 companies scaling back the amount information they report on.
• However, a comparison between company reports and media reporting showed not all organisations were transparent about workforce issues in their corporate reports. For instance, there were three cases of workplace strikes amongst FTSE 100 companies in the media; two of the strikes were fully reported on in annual reports, one case was not reported at all. In total, there were four cases of employees being involved with insider trading in the media outlets but none of these were recorded in the annual reports.
• The quality and quantity of reporting on human capital issues is improving – with an increase in reporting across ethics (up by 22%), diversity (up by 39%) and human rights (up by 127%)
• Companies working in the areas of property and recreation saw the biggest increases in human capital reporting.
• Banks have increased transparency after the recent financial crisis and PPI scandals
Former Business Secretary, Vince Cable, said: “The modern business landscape is increasingly made up of intangibles such as intellectual, social and brand capitals. People are central to these intangibles – they lead, manage and deliver businesses. By failing to properly account for the impact and value of people, there is a huge discrepancy between a company’s balance sheet and its market valuation. This report also highlights that some businesses may not be disclosing relevant information to minimise negative reactions from investors. It shows a poor understanding of the significance of people related data and the need for greater transparency. Having a clearer view of the people in our workforces can only be a good thing; it could lift the lid on our productivity issues and the skills challenges that are preventing so many businesses from reaching their potential.”
The Valuing your Talent partnership is a collaborative industry-led movement including The Chartered Institute of Management Accountants (CIMA), the CIPD, the professional body for HR and people development, and the Chartered Management Institute (CMI). Working across professions, the partnership aims to improve human capital measurement and reporting, and ultimately ensure that organisations understand and communicate the value of their people to key audiences both inside and outside the business.
A key part of the partnership’s work has been the creation of the Valuing your Talent framework, a tool which recommends a common language for people reporting and includes consistent human capital measures that organisations can use to achieve greater transparency on their workforce.
Charles Tilley, Chief Executive, CIMA comments: “This report shows just how big a shift is needed. We have to recognise people as the key to creating and preserving value. Failing to do so opens up major risks – and means that huge opportunities will be missed – because business leaders, investors and other stakeholders won’t have the data they need to make the right decisions.
“While the research does highlight some good practice by businesses such as, Royal Bank of Scotland, Legal and General and Royal Mail, it is clear that not all organisations are following their proactive approach to understanding their workforce and communicating their efforts and achievements to their stakeholders.
“To address these issues, taking an integrated approach is key. Finance and HR need to work together with others so that people measures are central to decision making in the boardroom – making the fullest possible use of Integrated Reporting <IR>. This combined effort is needed to provide the data which will provide the information required to drive insight that will transform business performance over the short, medium and long-term.”
Peter Cheese, Chief Executive of the CIPD, the professional body for HR and people development said: “Whilst organisations appear to be improving their corporate reporting on how people help to drive organisational performance, there’s still a long way to go before we have a consistent picture of how organisations are managing and developing their people. With many more questions being raised about corporate cultures, diversity, engagement and wellbeing, as well as the changing nature of the workforce and how these impact productivity and risk, we need greater transparency and consistency of human capital reporting. We need more common definitions of key people and organisational metrics, and for businesses to better articulate how they are using these measures to provide consistent insight for all stakeholders. This is now vital in building trust, in understanding the real drivers of productivity, in understanding critical risks, and in helping to create better work and working environments for all.”
Ann Francke, Chief Executive of the Chartered Management Institute, comments: “The number one driver of productivity and business growth is the quality of management and leadership, because that’s critical to how far organisations get the best from their people. But if managers don’t have sight of good people measures, they have a huge blind spot about performance and can’t make the best decisions about their business. The Valuing your Talent framework gives managers a clear model for talking with colleagues in HR and finance about what they need to measure and report when it comes to their people.”