Power to the people

The expectation that reporting on something will improve the way it is practised is, argue some, a triumph of hope over experience. The adage could certainly be applied to the principle of human capital management (HCM) reporting, as promulgated in the final report from the Accounting for People Taskforce, set up in January by trade and industry secretary Patricia Hewitt and headed by Denise Kingsmill, deputy chairman of the Competition Commission.

The aim of the taskforce is to champion the business case for human capital reporting, evaluate best practice and identify ways of encouraging and disseminating it. The report sprang few surprises. The main thrust of the recommendations was that HCM reporting should have a strategic focus, communicating clearly the links between HCM policies and practices and business strategy and performance, and that the information should be reported in OFRs, where they exist.

Whether the report raises the game of HR directors or encourages chief execs to engage with their workforce rather than pay lip service to the idea that people are their greatest asset remains to be seen.

Brett Walsh, head of human capital at Deloitte, is optimistic. “Having to report will concentrate people’s minds. Finance and HR professionals will be drawn into a closer working relationship, driving HR into the commercial heart of the business.” Equally, because HR will be able to demonstrate the value of its activities, he believes the board will be forced to align its strategy with the kind of people initiatives it once judged as peripheral.

Others suggest reporting on HCM will amount to box-ticking and window-dressing. “Hard metrics – such as the number of training days or HR staff per employee – are easy to measure, but the all-important behavioural stuff is more difficult to quantify,” says one senior HR consultant.

“The danger of these proposals is that you’ll get a snapshot of a few outcomes every year, when what’s really important is what goes on in the business every day. I think we could see a lot more systems and processes with a negligible effect on behaviour.”

Meanwhile, Matt Dixon, a principal at consultancy Towers Perrin, believes that HR practice will only improve once active investors engage with the issue, as they have with executive pay.

And, for the time being, there appears to be little appetite from investors for the kind of detailed reporting the taskforce report proposes. The Association of British Insurers, in its response to the consultation document last summer, stated: “Proper understanding of the issues is still not sufficiently developed among either potential providers or users of the information to devise specific reporting requirements.”

While the government mulls over its next step, boards and HR directors should remind themselves of the incontrovertible link between loyal employees, satisfied customers and profitability, and get on with attracting, motivating and retaining the best staff they can get.