New OFR guidelines are a missed opportunity for UK productivity and the investment community

An opportunity to improve UK productivity and competitiveness, and to enhance the quality of information available to investors, is in danger of being missed if the draft Reporting Standard for operating and financial reviews (OFRs) currently being consulted upon by the Accounting Standards Board (ASB) is not strengthened.

Responding to the consultation, the Chartered Institute of Personnel and Development (CIPD) today expressed alarm and disappointment at the failure of the ASB to give sufficient weight to the key role of human capital in determining organisational performance.

Angela Baron, CIPD Organisation and Resourcing Adviser, said: We are alarmed at the failure of the Accounting Standards Board to give proper weight to human capital in its draft reporting standards. In a modern, knowledge based economy, people are frequently the most valuable and important form of capital that an organisation needs if improved long-term organisational performance is to be delivered.

The ASB have failed to reflect the Secretary of Stateís intention to embed in law the concept of Enlightened Shareholder Value. We are disappointed that the issue of employees and their relevance to long-term performance has been allowed to slip so far down the list of factors that are deemed relevant to operational and financial reporting.

If companies are not required to report on human capital, investors will lack one of the most important sources of information to guide their investment decisions, and the country as a whole will lose out.

In our view, these standards will do little to encourage businesses to develop their understanding of the most valuable, flexible, and in many cases largest pool of capital available to them. The result will be a country where we continue to place more value on tangible resources such as property or technology, which decreasingly provide any form of differential competitive advantage, than on human capital, which has been shown to be one of the single most important determinators of productivity and profitability.

We have a wide range of research that supports our conclusion that significant business gains are to be made if organisations collect, analyse and act on all information available and relevant to their long term performance. This means considering the contribution and value of human capital in a thorough and systematic way, and in equal measure with other forms of capital.