CIMA study: A third of FTSE 100 annual reports leave investors with ‘incomplete picture' of business performance and risk
Near third of FTSE 100 companies are withholding relevant information from their annual reports and painting an inaccurate picture of opportunity and risk, according to a new research report from the Valuing Your Talent partnership, a collaborative project of the Chartered Institute of Management Accountants (CIMA), the Chartered Institute of Personnel and Development (CIPD), and the Chartered Management Institute (CMI).
The research shows that many organisations are failing to include vital workforce related information, including health and safety incidents, data breaches, skills challenges and employee turnover in their annual reports, creating a clear risk to users of these reports, such as investors.
The report assesses the current standard of human capital reporting by FTSE 100 companies by measuring if and how corporate reports have evolved between 2013 and 2015. It found that:
• The space dedicated to people welfare in some reports has reduced significantly with 2 in 5 companies scaling back the amount information they report on.
• However, a comparison between company reports and media reporting showed not all organisations were transparent about workforce issues in their corporate reports. For instance, there were three cases of workplace strikes amongst FTSE 100 companies in the media; two of the strikes were fully reported on in annual reports, one case was not reported at all. In total, there were four cases of employees being involved with insider trading in the media outlets but none of these were recorded in the annual reports.
• The quality and quantity of reporting on human capital issues is improving – with an increase in reporting across ethics (up by 22%), diversity (up by 39%) and human rights (up by 127%).
• Banks have increased transparency after the recent financial crisis and PPI scandals.
Krisztof Kmuk, Emerging Markets Development Manager CEE, CIMA comments: "This report shows just how big a shift is needed. We have to recognise people as the key to creating and preserving value. Failing to do so opens up major risks – and means that huge opportunities will be missed – because business leaders, investors and other stakeholders won't have the data they need to make the right decisions. To address these issues, taking an integrated approach is key. This combined effort is needed to provide the data which will provide the information required to drive insight that will transform business performance over the short, medium and long-term".
Former Business Secretary, UK, Vince Cable, said: "The modern business landscape is increasingly made up of intangibles such as intellectual, social and brand capitals. People are central to these intangibles – they lead, manage and deliver businesses. By failing to properly account for the impact and value of people, there is a huge discrepancy between a company's balance sheet and its market valuation. This report also highlights that some businesses may not be disclosing relevant information to minimise negative reactions from investors. It shows a poor understanding of the significance of people related data and the need for greater transparency."
Peter Cheese, Chief Executive of the CIPD, the professional body for HR and people development said:
"Whilst organisations appear to be improving their corporate reporting on how people help to drive organisational performance, there's still a long way to go before we have a consistent picture of how organisations are managing and developing their people. We need more common definitions of key people and organisational metrics, and for businesses to better articulate how they are using these measures to provide consistent insight for all stakeholders".
Ann Francke, Chief Executive of the Chartered Management Institute, comments:
"The number one driver of productivity and business growth is the quality of management and leadership, because that's critical to how far organisations get the best from their people. But if managers don't have sight of good people measures, they have a huge blind spot about performance and can't make the best decisions about their business. The Valuing your Talent framework gives managers a clear model for talking with colleagues in HR and finance about what they need to measure and report when it comes to their people.
The Valuing Your Talent partnership is calling on organisations to measure and disclose the impact and contribution of people on business performance so both they and key stakeholders can make informed decisions based on an accurate picture of opportunities and risk. Valuing your Talent framework is a tool which recommends a common language for people reporting and includes consistent human capital measures that organisations can use to achieve greater transparency on their workforce.
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