MCBASSI & COMPANY

The Smarter Annual Report: Part 2

avatar

There is a movement underway to improve annual reporting to stakeholders, and in particular the provision of better human capital information.  (See our November newsletter for a discussion of what’s happening and who’s behind it.  You can download a copy of The Smarter Annual Report here.)

While this development represents a major opportunity for HR, it also creates a danger that HR will be unprepared and have nothing to contribute except a long list of unrelated human capital metrics that don’t tell a coherent story.

We propose a simple model that helps give structure to the story of the role human capital plays in mitigating risk and creating value for an organization:


Steps You Can Take

To benefit from – and avoid being blindsided by – the emerging demands for insightful human capital reporting, you can begin with the following steps:

  • Assemble the right team to work on the report, reflecting different types of performance (non-financial as well as financial); in particular, the CHRO should be involved.
  • Create a rough narrative about how the organization creates value. This can include a strategy map, list of key strategic issues, list of key risks, materiality map, or some combination thereof. The point is to develop the narrative before presenting metrics.
  • Let the value creation narrative guide your selection of which factors to focus on. Be sure to always combine evidence (such as metrics) with insight (“this is what the evidence indicates”).
  • Include the standard metrics that are expected (e.g. by GRI) even if they are not part of the core narrative. (For these it is not essential to interpret the data.)
  • As you move forward, be realistic about whether the metrics you want are available.
  • Work to improve your internal human capital reporting in anticipation of increasing pressure to improve your external reporting.
  • Have a candid discussion on how you will handle bad news, such as falling scores on an important metric.

 

(This post was sent this month via email to our monthly newsletter subscribers.  Click here if you’d like to subscribe.)

The Smarter Annual Report

avatar

McBassi & Creelman Lambert is pleased to announce the release of The Smarter Annual Report: How companies are integrating financial and human capital reporting, a report that provides guidance to companies on how to respond to the movement toward improved annual reporting to stakeholders.  The report focuses in particular on the provision of better human capital information.  [We thank Halogen Software, which sponsored the study.]

A receive a free copy of the report, please visit The Smarter Annual Report page of our website.

Here’s a quick primer on what’s been going on in this area:

What is happening?
There is a well-established global movement to improve annual reports to go beyond narrow financial reporting. The intent is to better convey how an organization creates value and meets the needs of varied stakeholders.

  • A core element is the integration of human capital and financial information in a single report.
  • Organizations are starting to grasp that ‘sustainability’ is about both long-term performance and contributing to the planet’s survival – and that people are a critical ingredient of both.

Who is behind this?

  • The big players pushing for smarter annual reports are the Sustainability Accounting Standards Board (SASB) in the US and the International Integrated Reporting Council (IIRC) globally.
  • A well-established player in sustainability reporting is the Global Reporting Initiative (GRI). Their focus is more on corporate responsibility than value creation; nonetheless they play an important role in defining the metrics inserted into smarter annual reports.
  • A variety of other bodies are actively supporting improved corporate reporting. For example, The B-Team is a group of socially-aware leaders pushing corporate responsibility with “True Accounting” being an explicit part of their mission.

Will anything come of this?

  • A sizeable number of large, international companies have followed IIRC guidelines for integrated reporting on a trial basis for three years.
  • Michael Bloomberg and Mary Schapiro are serving as the Chair and Vice Chair of SASB. People of this caliber have the power to drive change in the world.
  • An Association of Chartered Certified Accountants survey of 200 CFOs indicates that half of the firms surveyed anticipate adopting integrated reports within three years.
  • Bottom line? Yes, change is coming.

HR’s opportunity & challenge

  • Human capital reporting offers great opportunities for the HR function to contribute by playing a core role in shaping the organization’s value creation narrative, and in developing better teamwork across functional boundaries.
  • HR may remain a bit player in the corporate reporting process, however, if it is unprepared, with little knowledge of the various emerging standards.  HR information systems and analytics must be integrated and able to demonstrate the cause and effect between human capital investment and business results. Otherwise, HR is unlikely to be able to contribute to — and benefit from — the changing world of corporate reporting.

(This post was sent this month via email to our monthly newsletter subscribers.  Click here if you’d like to subscribe.)

A Smarter Annual Report webinar

avatar

Join us on May 29, 2014, at 12:00 noon EDT for a webinar on “A Smarter Annual Report — how companies are integrating financial and human capital reporting.”

To register for the webinar, simply click here.

We hope to see you there!