How companies are integrating financial with human resource reporting

David Creelman

A Most Important Year for HR

I’ve recently released an important study; one that I hope coincides with a historic turning point for HR. The study is “The Smarter Annual Report: How companies are integrating financial and human capital reporting”. The topic is how companies are responding to the demands for better non-financial reporting; reporting that includes information on human capital.

If you’ve followed my work you’ll know this a subject I’ve cared about for years. My first big report on the area (with the help of David Ulrich) came out in 2006; and my personal highlight was speaking about it in the big room at the World Bank headquarters in Paris in 2012. However, as long as it was just people like me talking about putting human capital in annual reports, change would be slow coming.

What is different now is that there are two strong organizations pushing for better reporting. In the US the Sustainability Accounting Standards Board (SASB) is leading the charge; internationally it is the International Integrated Reporting Council (IIRC). These organizations have enough support that we are seeing some firms change what they report. In fact, in South Africa, integrated reporting is already mandatory. What starts with leading edge firms, will ultimately spread throughout the world.

How this will affect you
Most HR professionals are far removed from the world of annual reports so including human capital information may seem interesting but not especially relevant. You may well be working in an organization that doesn’t even produce an annual report.

Let me explain why this movement will still affect you.

What makes integrated reporting important is that we now have leading figures from the world of finance like the Governor of the Bank of England and the former chair of the Securities and Exchange Commission saying that organizations should improve reporting and as part of that be able to articulate how human capital relates to value creation—and to back up the story with numbers.

This conviction that we need to explicitly make the link between human capital and organizational success is relevant to everyone in HR, whether you work in a corporation, a government or a family firm.

What you should do
Step one is to read the report. This will give you the needed background on integrated reporting and illustrate how companies are reporting on human capital.

Step two is to get started by picking one strategic issue and illustrating how human capital affects that issue. It can be easiest to do this by thinking in terms of risk, for example “If turnover of people in these pivotal jobs is over 20% then the project will likely be delayed by a year or more which could cut profits by 5%.”

I’m tempted to say step three is “contact me”, because I’m very interested in helping firms move this forward. However with or without me, it is clear that once you’ve made a good start at articulating the talent story, and making the connection to what regulators and investors are asking for,  then you will have few problems in engaging top management and broadening the work in assessing how human capital affects performance.

A watershed year for HR
No organization achieves its goals without people. The functional area that is all about people, HR, should be at the centre of strategic decision making. It rarely is. That will change and when people look back and say “When did it really begin to change?” they may pick out 2015 as the year IIRC and SASB started getting traction. Don’t you want to be part of that history? Start by reading the free report.

You can get the report here.