by Dina Medland
Critical Data Deficit
The failure of many FTSE 100 businesses to capture and disclose key workforce data is providing an incomplete picture of key business indicators, according to research just out from the CIPD, the professional body for HR and people development. It has looked at how workforce reporting has changed over the last five years and explores how transparent organisations are being about risks and opportunities relating to the workforce.
The most commonly reported issues are talent management, succession planning and employee turnover. But despite much public expression of concern by businesses about access to skills after the UK leaves the European Union, only 21% of FTSE 100 firms report on skills gaps. Only 12% report their perspectives on skills shortages.
The quantity of workforce reporting has gone up – by 9% between 2015 and 2017 – but that’s a much smaller increase when you look at the 19% increase seen between 2013 and 2016 when the CIPD first analysed FTSE 100 workforce reporting.
There have also been huge leaps in technology regarding data capture and analysis in the last few years which Britain’s biggest businesses do not appear to be utilising for better corporate governance.
“There’s still a considerable challenge regarding the quality, consistency and transparency of data being reported. Organisations seem to focus their efforts on complying with legislation and governance codes and report on very little else voluntarily. Reporting is also often subject to trends or pressure from government rather than ongoing strategic imperatives” said Edward Houghton, senior research adviser for Human Capital and Governance at CIPD.
“We need to see much more consistency in what is being reported, the language used to report it and the measurements being applied so all stakeholders get a complete picture of workforce opportunities and risks" he added.
The CIPD has created a new reporting framework which is aimed at improving transparency and helping with the identification and management of workforce and cultural risks. It does assume improved use of workforce analytics.
Its People Risk Reporting Framework explores seven dimensions of workforce risk that employers should look to report against: talent management, health and safety, employee ethics, diversity and equality, employee relations, business continuity and reputational risk. All of those seem wired in well to the ethos of the revised UK corporate governance Code.
Revised UK Code and Diversity
Published on July 16, after the last Governance Watch, the revised UK code takes a more holistic view of the responsibilities of listed businesses. I covered the launch of the Code in my blog Board Talk.
But, given the CIPD’s emphasis in its new research that much of the FTSE 100 seems to focus efforts on complying with legislation and governance codes and reports on very little else voluntarily, the new Code appears to have missed an important opportunity.
The Code talks about the role of the nomination committee and states that the annual report should describe its work, including the policy on diversity and inclusion, its objectives and linkage to company strategy, how it has been implemented and progress on achieving the objectives. It should also report on the gender balance of those in the senior management and their direct reports.
But there is no mention of reporting requirements on workforce and board and senior management composition by race and ethnicity. It has been two years since the independent review by Sir John Parker into the ethnic diversity of the UK’s boardrooms, and the recommendations were clear.
In an interview given to me not long after the review was published, Sir John Parker said he hoped his report would “draw attention to the change in demographics around us, not only in the UK.” Half the world’s population growth is set to take place in nine countries, five of which are in Africa, with three in Asia. Add to this the fact that 75% of FTSE 100 sales are made outside the UK, while for the FTSE 250, 50% of sales are generated overseas. As he pointed out, even aligning the customer base means taking all this into account and acknowledging the need for ethnic diversity.
As for the “pool of talent in which we all fish, it is changing,” he said. It’s hard to understand why data capture and reporting is not being used as a key strategic tool for real diversity in the pursuit of better corporate governance.
Baroness McGregor-Smith, who led the Government’s review of race in the workplace in 2016, has warned that the face of work will be changing fundamentally over the coming years and urged HR professionals to be ready for it. Data was recognised in her review as paramount to improving progression in the workplace for BAME individuals, and she has called for mandatory reporting on workforce to diversity.
Ironically, there may even be a link between finding an answer to skills shortages and improving ethnic and racial representation, but we might have to wait for another big consultancy report akin to one on gender progression and another ten years of research for progress. The demands of cybersecurity and getting to grips with technological transformation suggest that’s an indulgent, even a foolish, time-frame.
Remuneration
Nothing focuses the public’s mind on corporate governance more than the subject of executive pay. The revised Code has been hailed in the FT primarily for its increase of the vesting period for shares paid in bonuses to directors from three to five years.
This week Royal Mail saw more than 70% of votes cast by shareholders against its remuneration report, opposing the pay of the incoming CEO, Rico Back. As John Plender writes today in the FT, “recent boardroom pay episodes at such companies as Persimmon and WPP have reinforced the impression that business is run by a greedy, self-serving plutocracy.”
Perhaps the most fundamental question in relation to corporate governance and the wider economy, he says, concerns the shortcomings of limited liability. The implicit contract behind it has broken down, he says, creating the need to address a “substantial agenda for reform.”
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