Government proposals on financial reporting lack focus on people, says CIPD

Chief Executives’ assertions in annual reports and accounts that our people are our greatest asset risk remaining as airy clichs unless the Government does more to strengthen reporting requirements in their latest proposals on accountancy reform, according to the CIPD.

The CIPD’s research demonstrates that we are moving to what it calls the knowledge and service based, Nick Leeson and JK Rowling economy, in which individual employees can have a massive effect on the financial performance of companies.

The Department of Trade and Industry is proposing that all quoted companies introduce a new Operating and Review section in their annual report and accounts from 2005, to provide a more strategic and forward looking perspective, and place a greater emphasis on the importance of so-called intangible, largely human assets. The CIPD has responded to the consultation on the draft proposals, which end today (Friday 6 August 2004).

Companies would have to include some information about employees in their OFR, or explain why they have not. Submitting the CIPD response to the consultation, CIPD Assistant Director General Duncan Brown said, These proposals would require only a minimal amount, such as the total number of employees, which would tell investors little about how well a company generates value through its staff. The proposals from the DTI’s own Accounting for People Taskforce, which the CIPD advised and which reported last year, have largely been ignored.

The taskforce recommended that companies be compelled to include information in their OFR about their human capital management strategy, which it defined as an approach to people management that treats it as a high level strategic issue and seeks to systematically measure how people policies and practices create value. It specified areas that should be reported on such as training investment, employee turnover rates, and staff attitudes and satisfaction.

Yet in these latest proposals none of this is required and it is left to the discretion of the directors of the company to review and identify the relevant factors in their particular case, or omit them altogether if they see fit.

According to CIPD Assistant Director General Duncan Brown, The DTI produces national competitiveness indicators to encourage companies to better manage and invest in their people, to help move the UK economy in the desired direction up the added value chain. Yet it appears to be backing away from making individual companies do the same. Leaving this decision to individual companies and their directors, risks institutionalising airy clichs about the importance of people, while leaving investors and staff in the dark about the real picture.

High performing and forward thinking companies such as Standard Chartered, Royal Bank of Scotland, Asda and the RAC already monitor and report on a wide range of human capital statistics, to demonstrate that they produce high added value for shareholders by being a great place to work. The DTI should be doing more to insist that all companies follow their example.