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29 March, 2023

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Why workforce disclosure is a governance issue

by Paul Dickinson

Investors are increasingly interested in the social purpose of companies, with a new focus on the quality of workforce practices and how they should be reported.

workplace, worker, workforce disclosure

Image: Shutterstock

We are in an era in which mainstream asset managers are paying closer attention to both the direct impacts and the externalities of their investments. This applies equally to how they deliver sustainable long-term growth for shareholders as well as to how they can make a positive contribution to society.

I have been a trustee of the responsible investment charity ShareAction since 2014. In that time, I’ve seen the focus of the investment community expand to include a greater range of social considerations, as well as their longer-standing concerns.

Leading investors are taking a broad-based view regarding what business success looks like and they see value in corporate leadership that acts with an eye on social purpose as well as performance. They recognise that productivity matters. That talent pipelines and workforce engagement matters. And yet often it seems there is a gap between what is increasingly expected to be within the reach of well-developed companies, and what workforce insights they are able or willing to share.

In 2018 we saw this demonstrated here in the UK with the introduction of reporting on the gender pay gap. Attempts to respond have highlighted how even something as relatively binary to measure as gender and pay rates can leave companies grappling for the necessary data.

Many companies currently seem to prefer to hide their data—or lack thereof—until tighter regulation forces it out into the open

A hesitant or poor approach in this area brings into question what employers are doing to track data in other areas, where differences and disparities might arguably be more challenging to measure. Rather than be open about needing to make up ground, and setting a plan in motion to make that a reality, many companies currently seem to prefer to hide their data—or lack thereof—until tighter regulation forces it out into the open.

It is such inconsistent, patchy and compromised approaches to workforce reporting that inspired ShareAction and partners to develop the Workforce Disclosure Initiative (WDI). The WDI has swiftly attracted the participation of many large institutional investors—including Amundi, Legal and General, AXA, Schroders, M&G, HSBC and BMO Global Asset Management—that see the WDI as a way to collectively push for and access better quality data and insight on the management of the direct operations and supply chain workforce.

As well as being interested in the material aspects of workforce management, prominent investor signatories also say they want companies to be more transparent in this area as it is “the right thing to do”. In recent months, the number of WDI investor signatories has risen to more than 120 institutions with well in excess of $13 trillion of assets under management, headquartered in more than 14 countries. They represent an evolution in stewardship, where appropriate attention to the workforce is recognised as a key consideration for assessing good business practices and acumen.

A crucial asset

The WDI is a response to feedback from the investment community about their frustration with the lack of good quality and comparable workforce data available in company reports. It turns out that the management cliché “our people are our greatest asset” is actually regarded as true, so how well is that crucial asset being managed?

Many investors tell us that they regard a lack of transparency about workforce practices as being a significant governance issue too, with attempts to sidestep accountability raising questions for some about whether workforce problems were being inadvertently overlooked or wilfully concealed.

There is no conflict between the interests of workers and shareholders, but rather they are equal partners in the enterprise. The graveyard of underperforming and failed investments is littered with the remnants of companies that ignored feedback from their workforce, or turned a blind eye to risks concealed within fragmented and fallible supply chains.

Many investors regard a lack of transparency about workforce practices as a significant governance issue

Investors are also keen to access better workforce data in order to more effectively assess the contribution of their portfolio companies to global frameworks such as the UN Sustainable Development Goals. It seems no coincidence that Goal 8 on Decent Work sits at the heart of the commitments, as its delivery can help to unlock other goals such as reduction in poverty, improvements in education and health, and the attainment of equality and women’s empowerment.

Leading listed companies are increasingly taking these considerations seriously and recognising both that investors are genuinely interested in understanding more about what’s going on “under the bonnet” of their investments, but also that it’s in a company’s own interests to approach this issue with rigour.

No one is expecting you to have all the answers here and now, but there is a growing expectation that companies should be prepared to scrutinise what they do have and—perhaps most significantly—whether the gaps in data availability pose a business risk or a potentially missed opportunity, and should therefore be filled.

A ten-billion-dollar company responding to WDI in 2018 put it better than I ever could: “Completing the survey has given us some insights into our own processes and procedures. It has facilitated discussions between several different departments and has proved an invaluable exercise for us.”

Ask the right questions

For any board it can of course be challenging to keep on top of the necessary detail. Good governance is about asking the right questions, so you can comfortably stand out of the way and let executive management forge a successful path.

And that would be my challenge to you for the months ahead. Ask your leadership team how they’re preparing the ground for ensuring workforce stability and productivity. Support workforce reporting as a priority for 2019, and set appropriate budgets and targets for ensuring this happens.

What we’ve seen to date is that in general the prioritisation of workforce monitoring and reporting is not being led from the top. But that’s what needs to happen for businesses to be sustainable, and for the workers they rely on to be able to thrive.

In general the prioritisation of workforce monitoring and reporting is not being led from the top. But that’s what needs to happen for businesses to be sustainable

In addition, too many companies hide behind an excuse of “reporting fatigue”. This is neither original nor, in many cases, accurate. 
While doubtless resources are finite and requests have to be prioritised, too often when pressed, it turns out that actually the company claiming they are saturated is, in reality, participating in few if any reporting frameworks, and seldom do they disclose on the workforce.

Investors, too, want companies to have as much time as possible to identify and implement improvements, rather than endlessly report, and this is one of the key reasons why so many of them have combined in support of the WDI. This process is intended to counteract fatigue by reducing numerous requests for private disclosure into one public disclosure.

Workforce transparency

Powered by investor interest, the WDI has approached workforce reporting focusing specifically on companies where the subject has the greatest relevance: we’re not going just for the obvious, highest-cap companies, but for the ones that can really help to drive improvements in workforce transparency and conditions for workers.

Those that responded to the WDI 2018 include leading companies from all 11 of the sectors that investors wrote to, with disclosures covering prominent organisations headquartered in at least 16 countries. 
It’s exciting to work with leading companies that are pioneering greater accountability and new approaches in this area.

The WDI team and partners are analysing the disclosures now and sharing initial feedback with participating companies about how the breadth of data they’ve submitted compares with others in their sector and geography. We are also building towards the next survey this year and will, once again, be incorporating feedback from all parties to refine the process so that it continues to deliver both for companies and signatory investors.

Invaluable insights

Investors increasingly recognise that the workforce matters, and that companies that really value their workers should in a position to share meaningful data on how they put that into practice. Over time the WDI aims to achieve a standardisation of workforce reporting, so that investors and other stakeholders—including workers—can build more of an understanding of how particular practices fit into the strategy for long-term success.

The public findings from the 2018 survey are now available. Be sure to review the findings and recommendations, and prepare your team for the next investor request for participation in the WDI which will be arriving with your CEO later this year. This is a request for disclosure that isn’t going away.

Paul Dickinson is chair of trustees at ShareAction.

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investor engagement, Paul Dickinson, reporting, ShareAction, social purpose, UN SDGs, Workforce Disclosure Initiative

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