Shareholders will increasingly insist on fuller statements of HRpractices. So is there commercial advantage in publishing a statement of personnel practices in your Report and Accounts? By Caroline Horn
There are a number of tools that the City and investors use to value a company. Glance through a batch of Report & Accounts, and you conclude that HR practices have not, traditionally, been among them. But the trend towards measuring a company's performance against a combination of factors - not just the balance sheet - is raising the stakes for personnel departments.
Marc Thompson of Templeton College, Oxford, has been reviewing studies into the correlation between business performance and HR practice. "What is happening is that firms realise that intangible assets are expanding the difference between the book value of a company and its market value," he says.
"So the question is, what are those intangible assets?" Only a very small percentage of Microsoft's market capitalisation, for example, is in tangible assets. The rest concerns its R&D, intellectual property, risk management and reputation, as well as its people management.
Accountants are starting to think about how to measure these intangible assets and a range of reporting standards are being developed. These will cover areas such as people management, a firm's brand value and knowledge management. It will probably take another five years, however, before HR practice is given a value in a company's Report & Accounts.
Lack of understanding
The lack of current understanding about how HR practices can contribute to the bottom line is reflected in the fact that few corporates give more than a passing glance to their HR strategy in their Report & Accounts - other than saying, typically, "People are our most valuable asset". In a study carried out by the IPD three years ago, two-thirds of the 50 companies surveyed had some reference to their HR practice but only two managed to produce more than one paragraph - and that was because they were having to explain redundancies. More recently, says Nigel Crouch, an industrialist with the DTI's Innovations Unit, firms have started to highlight personnel issues more, but much of it can be read as platitudinous.
Shaun Tyson, professor of HR management at Cranfield School of Management, says the lack of detail about personnel strategies in a company's Report & Accounts is understandable. "T