A quoted company takes over a financial recruitment agency. Some 18 months later, most of the staff have gone. Shareholders have lost out and should have been told about the company's ability, or in this case inability, to manage people.
The chairperson of a CIPD/Institute of Chartered Accountants seminar concluded that, "organisations need to stop being shy about their human capital if they are to give a full and fair view of their performance".
Secretary of state for trade and industry, Patricia Hewitt, apparently agreed. She described her intention to "embed in law the concept of enlightened shareholder value, ensuring that regard has to be paid by directors to the long term as well as the short term and to wider factors such as employees". The mandatory Operating and Financial Review (OFR) forms a key part of these reforms.
Launching the DTI's Accounting for People Taskforce, Hewitt referred to the "the importance of human capital reporting". She said: "The best UK companies understand that smart people management underpins their business performance." That taskforce recommended that companies explain in the OFR their strategy for adding value through their human capital management. What company, the taskforce asked pointedly, could not regard their employees as material to the achievement of their business strategy?
Reading the draft OFR standard from the Accounting Standards Board (ASB), makes me wonder if the [board] has read the Taskforce's report, (which receives one mention in the document, two paragraphs from the end of the final appendix).
Here are the views of some of my CIPD branch colleagues on the draft:
- "We were very disappointed that the human capital element has been given very little mention. This is fundamentally at odds with the rationale for the OFR, that "shareholders can only exercise effective control if they have clear information about the main drivers of a company's past and future performance."
- "This is a major missed opportunity for taking a significant step towards more effective use of human capital."
American professor Baruch Lev observed drily of the accounting profession that a little change probably did everyone some good, at least every 500 years or so.
Yet we can't heap all the blame on the accountants. Companies can only report on human capital externally if they have this information internally. The CIPD's new Human Capital Reporting guide profil