UK companies are failing to provide investors with adequate information about their employees, despite demands from regulation and corporate governance that workforce disclosures should be a central part of company reporting.
According to a report from the Financial Reporting Council (FRC), investors want to know about the composition of a workforce, whether it is a strategic asset and how workers relate to long-term “value creation”.
“Despite regulatory focus over recent years and increasing company and investor interest, there is a lack of consistent disclosure on workforce matters,” said the FRC report.
“A gap remains between the reporting investors are looking for and what is being disclosed.”
This blunt assessment comes from the FRCs Financial Reporting Lab, a part of the watchdog that reports on critical issues in corporate disclosures to provide guidance and advice.
There has been growing interest in workforce reporting, not just from regulators but from a growing acceptance that appropriate management of a workforce is a central part of a company’s sustainability strategy.
Indeed, there is now ever international attention on the topic. The Social & Human Capital Coalition is an international body campaigning to help companies measure and value the “importance of people and communities”. Meanwhile, the Workforce Disclosure Initiative (WDI) launched by ShareAction, an NGO backed by investors with $15trn of assets under management, actively calls for better disclosures from corporates.
As the FRC spells out, the regulatory environment has been increasing the pressure on companies to provide more—and better—workforce reporting. The Companies Act 2006 says companies should provide information on “employee matters” when reporting while another piece of law from 2018, the Companies (Miscellaneous Reporting) Reporting Regulations, demands publication of CEO pay ratios as well reporting on how engagement with employees has taken place on issues affecting workers.
The Corporate Governance Code now asks for reports on how directors fulfilled their duties, set out in Section 172 of the Companies Act, and that includes how the interests of workers are addressed.
But companies appear to be coming up short. This finding is broadly in agreement with the WDI: when the project last published research, in April last year, it said that while the volume of companies reporting on workforce matters was increasing, the quality of those disclosures was patchy.
According to Charlie Crossley, project coordinator of the WDI: “The workforce is rising up the agenda of boards, it seems. It’s clear from the fact companies are gathering this data on both direct operations and the supply chain that they are taking steps in the right direction.
“However, we think there is still a gap between willingness to engage in the process, which is great, and the actual quality of the data that is disclosed to the survey.”
The WDI has also campaigned for named companies to up their game. In July it targeted headline names such as Rio Tinto, Walmart and Coca-Cola with a challenge to improve the quality of their reporting.
In a bid to push improvements the FRC offers it own advice. This includes how a board engages with its workforce and how a board’s thinking on workforce issues affect strategic decisions; how the workforce is defined; how a workforce creates value and the risks and opportunities that arise from workforce. There is also a call for reporting on how workforce culture is “driven” and how the “buy in” of employees has been achieved.
Investors have been demanding more information on topics such as cybersecurity and climate risk. They also want more workforce disclosures. They are unlikely to ease their demands.