HR professionals must demand that the Government includes more people information in forthcoming company reporting regulations, otherwise the profession risks being completely sidelined.
Personnel Today’s call, backed up by industry experts, comes after it emerged that employee information is all but ignored in the draft Operating and Financial Review (OFR) regulations, which are due to become law in April.
In 2003, the Department of Trade and Industry’s Accounting for People taskforce recommended that human capital management (HCM) should form a key part of the OFRs – which apply to companies with more than 1,000 employees. At the time, trade and industry secretary Patricia Hewitt said the recommendations would “form useful guidance to help companies ensure that their OFRs reflect how the management and development of their people impacts on the performance of their business”.
But in the new draft regulations, which are out for consultation until 28 February, employees are only mentioned in passing and there is no reference at all to the term ‘HCM’.
The Accounting Standards Board (ASB) regulations, which give legal effect to the OFRs, state that staff is one of nine areas requiring reporting only “to the extent necessary” in directors’ eyes and that staff information may be included “depending on the nature of the business”.
In the ASB guidance, employees are seen almost exclusively as a risk rather than an asset, with only health & safety and morale being the only areas highlighted as key performance areas.
Duncan Brown, assistant director general at the Chartered Institute of Personnel and Development, warned that merely reporting on the number of staff and some information about employee communication will be enough to meet the guidelines.
“It’s as if ‘Accounting for People’ never happened,” he said. “I don’t know where these guidelines came from. The regulations say that matters relating to strategy should be covered, but I am going to ask them to give me examples of companies where people are not key to the strategy.”
HR professionals must use the time available to respond to the DTI’s consultation period, either directly or via Personnel Today’s petition, Brown said. “The whole reason for OFRs was because of weaknesses in financial reporting,” he said. “Unless something is done, reporting will be no better.”
A DTI spokeswoman said the regulations were supposed to be a “light touch”.
“It is not meant to be a tick-box process,” she said. “We want companies to provide intelligent, useful information. The Government has not specified how to do it as one size does not fit all. Companies have to think about what is really relevant to them as the impact will be different for every one.”
Join our call for employee information to be included in company reporting regulations:
Feedback from the profession
Paul Turner, general manager (people), West Bromwich Building Society
“The regulations offer a great opportunity to build on the work of Kingsmill, but they do not go far enough. There is an opportunity over the next few weeks for HR to get lobbying so we can build on the positive aspects and toughen up the guidelines, because there is a lot a latitude there.”
Duncan Brown, assistant director general of the CIPD (who was on the advisory panel for AfP)
“Because the perception built up that the Government was going to do something here, it could now have a negative effect. Companies should be (measuring the value of HR) anyway, but, for whatever reason, they are not. Without the legislation there is no real external driver.”
Paul Kearns, director of HR consultancy PWL
“If HR professionals were waiting for any ‘leadership’ on this issue they had better not be holding their breath. It proves that the Government and business leaders don’t have a clue what HCM means or how they might get significantly more value out of their people than they do now.”
Brett Walsh, European head of human capital consulting at Deloitte
“At face value, the recommendations in the new draft regulations look disappointing for those of us who see people issues high on the CEO agenda, together with the need for better reporting. This appears to be an opportunity missed.”
David Bishop, senior adviser KPMG (who was on the Accounting for People taskforce)
“I’m fairly happy with the [draft] regulations – the taskforce was all about creating an awareness and understanding of HCM and how important it is. We are now leaving it up to management, but they ignore this at their peril. If companies do not include people information it almost implies that they are of lesser importance than other things that are necessary for an understanding of risk and strategy.”
Saudagar Singh, HR director, npower
“The draft regulations are very disappointing. It is sad that the output of the work undertaken by the DTI-sponsored Kingsmill Accounting for People taskforce has not been understood or had any substantial impact on the regulations. An obligation to include employee information in company reports would certainly have assisted in improving the focus on better people management in companies. Unfortunately, we have another missed opportunity for moving the people agenda forward, for the benefit of UK plc.”
How HCM guidance came to be ignored
– Directors of companies producing OFRs should include within them information on HCM within the organisation, or explain why it is not material.
– The Government should consult with leading employers, investors, professional organisations and other relevant stakeholders on the introduction of a programme to aid the dissemination of best practice on HCM and HCM reporting.
– The Accounting Standards Board be charged with monitoring the extent and depth of HCM reporting in OFRs, reporting to the Industry Secretary within two years of its formation.
Source: Accounting for People recommendations, October 2003
– No reference at all to the Accounting for People taskforce’s terminology of HCM.
– Staff information may be included ‘depending on the nature of the business’.
– It is up to the directors to decide if they include information about employees on the basis of whether it is a principal risk or uncertainty facing the company.
– Employees are seen almost exclusively as a risk rather than an asset – health and safety and morale are the only areas highlighted as key performance areas.
Source: OFR draft regulations and the Accounting Standards Board regulations, which give legal effect to the OFRs, January 2005