OFRs must include people information, says HR

The government must force companies to include people information in their annual reports when it resurrects the Operating and Financial Review (OFR), HR industry experts have insisted.

The OFR, a written account of how a company is being run that is designed to complement financial data, was first proposed by the Labour government in 2003, then scrapped in 2005, before being reinstated in 2006 in a watered down, voluntary format that was ignored by many businesses.

In its coalition agreement, the new government committed to reinstating a compulsory OFR, requiring companies to cover directors’ “social and environmental duties” in annual reports.

The Department for Business, Innovation and Skills could not confirm whether employee information would be a requirement of the new OFR, but HR industry leaders said there was a “clear benefit” for investors in there being a mechanism where companies are required to formally report on their people practices.

David Fairhurst, chief people officer at McDonalds UK and Northern Europe, told Personnel Today: “At a time when organisations are focused on recovery and realignment following the recession, I think HR directors should be encouraging government to make people information a requirement of the OFR, but be clear that this should, in the early stages, be loosely framed and deliverable with the minimum of organisational disruption.”

Fairhurst called for a statement from the main board HR director – or the chief executive if HR is not represented on the main board – which states how people contribute to bottom-line performance, how the organisation is engaging and developing its people to enhance performance, and human capital management data that provides evidence of the impact of such initiatives on employees and the bottom line.

Helen Giles, HR director of homelessness charity Broadway, agreed. “I am absolutely in favour of compulsory reporting of key performance indicators in relation to people management/HR capital indicators because this is not simply a social and ethical matter – it is fundamental to understanding how high performing and sustainable an organisation is in the longer term.

“An organisation that invests well in good leadership and people management is one which will have positive scores here, high levels of engagement and commitment from their staff, and will be creative and profitable for the long haul,” she added.

Giles believes areas including sickness absence rates, completion rates of annual performance reviews, dates of employee surveys, and the total amount of settlements paid out to remove under-performing executives, managers and staff should be provided by all companies, public bodies and charities.

Paul Kearns, director of HR consultancy PWL and a long-term advocate of rigorous measurement of HR performance, said: “The ‘people dimension’ is critical because it reveals the long-term, underlying strengths and weaknesses of organisations – a profit and loss and balance sheet and conventional reports do not, and as such say little or nothing about sustainable performance.”

Mike Emmott, employee relations adviser at the Chartered Institute of Personnel and Development, said HR directors will “certainly be supporting OFRs”.

“The crucial thing is engagement,” he added. “Engagement is quite broad, measurable and picks up a lot of issues about quality of line management and the culture of an organisation led from the top. Engagement scores are economical to produce and give you a lot of information.”

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