Normally HR leaders don’t need to worry about annual reports; in fact many HR leaders work for organizations that do not even have annual reports. However, there is a shift in perspective taking place among movers and shakers in the business world and that shift will eventually affect everyone in HR.
The shift is a recognition that human capital matters so much to organizations that information on human capital should be shared with investors.
Of course, people have being saying “people are our most important asset” since the stone age; and for at least 30 years thought leaders have argued that human capital belongs in annual reports. What’s new this time is that we have some powerful groups pushing for change; and that’s why we can expect change to finally occur.
It’s important to note this push for smarter annual reports is not only about human capital; it’s about covering all those things that create value; but everyone agrees human capital is a big part of the story.
The forces behind the change
The two most prominent groups leading the way are the IIRC (International Integrated Reporting Council) and SASB (Sustainability Accounting Standards Board). Both these groups have good backing and are providing guidelines of how to improve reporting to shareholders. The IIRC has already been successful in having Integrated Reporting made a standard in South Africa.
There is a much more to say about the forces backing this movement and why I think they are strong enough to drive real change. However, if you are an HR manager in a mid-sized firm, you may still feel this is one of those “really interesting stories that has nothing to do with me”.
How this shift could affect you
Here’s how it can affect you and why you should want it to affect you. We are now in a situation where people like Mark Carney, the Governor of the Bank of England, are very publicly encouraging companies to adopt integrated reporting. The CEO of even a small private firm should take this as advice from a revered business figure that all organizations need to get better at understanding how human capital drives success and we should be able to back that up with numbers.
HR is now in a position to say to the CEO “Shall I follow this major business trend and start preparing better insights for you, backed with numbers, on how people issues impact our strategy?” Assuming the CEO shows interest, you are perfectly positioned to take the HR function to the next level.
How to implement change
You may be thinking at this point “I’m glad that David thinks I am perfectly positioned, but I’m not so sure.” Maybe you fear you lack the expertise and data to deliver on this promise. Here’s my advice:
1. Firstly, set this up as a collaborative effort with the top management team. Together you are sharing ideas on where talent and culture issues have the greatest impact on strategy.
2. Secondly, be modest in your ambitions, one or two insights is enough for now.
3. Third, focus on available data rather than on data you would like but don’t have or don’t trust. It’s all doable and it need not be a massive effort.
You can read the tea leaves that in time the CEO will want better HR data and better HR systems to leverage people in the organization. That’s great. That is where HR can really add value. Working to be part of that evolution of organizations is a wonderful way to invest in the future.
Want to learn more about Smarter Reports? Read my (excellent) study, co-authored by the Laurie Bassi (New York) and Andrew Lambert (London), titled: The Smarter Annual Report: How Companies are Integrating Financial and Human Capital Reporting.
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