Workforce reporting needs improvement, FRC

Reporting on workforce-related issues needs to improve to meet investor needs and reflect modern-day practices, according to a new report from the Financial Reporting Council’s  Financial Reporting Lab.

Workforce-related matters such as working conditions, changing contractual arrangements and automation have all become areas of increasing investor focus in recent years and the Lab’s report reveals investors overwhelming support for clearer company disclosures.

The paper offers practical guidance and examples on how companies can provide improved information to investors. It encourages corporates 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.

“Despite regulatory focus over recent years and increasing company and investor interest, there is a lack of consistent disclosure on workforce matters,” the FRC said in a statement accompanying the report.

“A gap remains between the reporting investors are looking for and what is being disclosed. Investors seek a more fundamental understanding of the composition of the workforce, but also an indication of whether the workforce is a strategic asset and how this relates to longer-term value creation.”

The hunt for answers

In trying to understand which companies can build and maintain a productive workforce over time, investors are interested in how a company intends to support the development of its workforce in a sustainable, long-term way. Specifically, the FRC found that investors are seeking greater insight into:

  • how boards consider and assess the topic of the workforce,
  • what information they see,
  • what the workforce is and how it contributes to the success of the business model,
  • the risks and opportunities related to the workforce,
  • how the company measures the contribution of the workforce

It also found that investors sought more data, including financially-relevant information and reliable, transparent metrics. Investors overwhelmingly support more detailed, transparent disclosure of workforce matters.

However, they caution that disclosure is developing, and as investor expectations grow and new regulatory changes are implemented, even further development will be necessary.

Regulators demand more

While reporting that encourages or requires detail on a company’s workforce has been in place for a few years, there have been additional regulatory additions in recent years.

In 2018, for example, the UK Corporate Governance Code was updated to include specific provisions on how the board engages with the workforce, There has also been new guidance issued on reporting requirements for CEO and employee pay, and the ratio between the two.

But investors, too, have found they have to scrutinise issues relating to environmental, social and governance matters more closely. The new Shareholder Rights Directive and the revised UK Stewardship Code has made this clear with more detailed specifications than ever before.

There is growing evidence that investors want to understand the cross section of company workforces and the relationship with the corporate business model, according to the FRC.

“As the nature of the workforce has evolved, so too have the opportunities and risks for investors,” said Phil FitzGerald, director of the FRC’s Financial Reporting Lab.

“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.”

Last Updated: 24 January 2020
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