Investors want more insight into relationship between board and employees

Companies need to improve their reporting on workforce-related issues by providing clearer and more consistent information about how staff interface with wider the business strategy, says UK standard setter

Working conditions, changing contractual arrangements and automation are all areas of increasing importance for investors who are calling for clearer company disclosures on workforce related issues, according to the latest Financial Reporting Council’s (FRC) Lab report.

The Financial Reporting Lab’s research found investors are increasingly focusing on matters such as working conditions, changing contractual arrangements and automation. This is partly the result of new regulations in the Companies Act 2006 and changes to the Corporate Governance Code 2018, and also as a result of public pressure.

Investors want to understand how the workforce creates value, how that value is maintained and future risks and opportunities. They want more transparency on the prioritisation of risks and their likelihood and impact, as well as how the company measures workforce contribution and their views towards their work. Investors also seek more data, including financially-relevant information and reliable, transparent metrics.

Investors need specific information about the composition of the workforce, including total headcount, demographics and employment mix such as direct employees, contractors and/or others in the supply chain.

There is also an increasing desire among a number of stakeholders for companies to report on workforce matters, such as culture, employee engagement and the workforce environment.

Corporate culture is another important issue highlighted in the recent review of how companies report under the Corporate Governance Code. Culture is measured by employee engagement, retention and turnover (both planned and regrettable), values being applied in the working environment and other measures of culture that the company monitors.

The research found that while disclosure is improving, there was a lack of consistency in the quality of reporting on this issue with different approaches to how human capital considerations impact on company performance.

Companies often fail to show the links between the workforce and the business strategy.

The report provides practical guidance and examples on how companies can provide improved information to investors. It encourages companies to think of the workforce as a strategic asset and explain how it is invested in, underpinned by data on the composition, engagement, retention and diversity of the workforce.

The FRC highlights examples of best practice at a number of major listed companies including AstraZeneca, SAP and Carnival Corporation. These companies provide detailed workforce reporting by segment and geographic location, linking workforce demands to corporate strategy.

Phil Fitz-Gerald, director of the Lab, said: ‘Reporting on culture should be informative and provide investors with a clearer insight into risks, setting out how the workforce contributes to value and how that value is maintained. 

‘Given the competition for talent, investors are also interested in how companies intend to support the development of their workforces in a sustainable, long-term fashion.’

Questions for boards to ask

In order to help investors, understand how boards consider and assess workforce matters, including what information they see, companies should ask themselves:

  • What arrangements does the board have in place for assessing and considering workforce-related matters;
  • who has responsibility for workforce-related matters and how often are workforce-related issues considered;
  • what insight does the information on workforce matters give the company and how is it being integrated into strategic planning;
  • what information and metrics do the board monitor in relation to the workforce;
  • how does the board get comfort over the metrics being used to monitor and manage the relevant matters;
  • who prepares the information the board receives in relation to the workforce;
  • what is it like to work in the company, and how does the board get sight of the workforce’s views;
  • how does the board interact with the workforce without management present;
  • which workforce-related matters does the board consider it might be helpful to change; 
  • is this informed by workforce feedback; and
  • does the board consider the workforce-related reporting to be fair, balanced and understandable.

Financial Reporting Lab workforce-related corporate reporting: where to next? Issued Jan 2020

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