The era of non-financial data transparency and advanced stakeholder capitalism is upon us. Corporate stakeholders — from employees and customers to board members, investors, partners and regulators — are calling for greater disclosure of information related to the “four P’s”: people, profit, planet and purpose.
Several factors are driving this demand, notably the increased emphasis on a company’s intangible assets — such as its brand and culture — plus the crises of 2020 that altered work as we know it and shone a light on persistent racial, social and economic inequities.
All corporations must prepare for a future in which details of their work in these areas are open to all. By the end of March, 94 per cent of investors will have engaged with boards on matters including workforce diversity, employee health and safety, and corporate culture, according to a survey of 600 investors in North America, Europe and Japan by Edelman and the National Association of Corporate Directors.
In their first-quarter results, US-based public companies will be required to disclose human capital measures or objectives considered material to their business. Additionally, at this week’s meeting of the World Economic Forum’s international business council, agreement is expected on a standard set of metrics for stakeholder capitalism — covering corporate purpose, wellbeing, skills for the future, diversity, equity and culture.
The implications of these developments are significant. Disclose too little — or inconsistent data — and face regulatory or legal consequences, or brand and shareholder devaluation resulting from distrust among staff and consumers. But it is also an opportunity for a company to promote commitment and progress in these areas.
The rewards for getting it right can be difficult to measure, but include enhanced brand and reputation, as well as greater consumer confidence. Now is the time for executive leadership to become familiar with the relevant non-financial reporting standards and frameworks from different governing bodies to ensure consistency and avoid unnecessary gaps in their data. In doing so, they should focus on these areas:
Sustainability, ESG and human capital
According to the Governance & Accountability Institute, 90 per cent of S&P 500 groups issued a sustainability report in 2019. Sustainability, ESG, and health and safety initiatives often include human-capital metrics specific to workforce development and readiness, engagement, diversity, culture and wellbeing.
A company must therefore ensure the human capital data it discloses is consistent with other types of workforce-related data it has previously shared. The number of organisations planning to increase emphasis on mental health this year had doubled to 84 per cent in August last year, compared with before the pandemic in December 2019, according to two studies conducted by the Institute for Corporate Productivity with Professor Rob Cross of Babson College and WorldatWork, an association of HR professionals. This is important as employee health is often disclosed amid ESG or health and safety reporting.
Strategy and capital allocation
There is a new corporate currency, and it is a composite of three factors: purpose, why it does what it does; culture, what staff experience; and brand, its reputation. The strength of these indicates a company’s ability to attract and retain talented employees. Take digital transformation. Training employees with new skills may be critical to execute the new strategy. Many companies are required to disclose training costs to prove their commitment to staff development. But imagine the positive brand implications for a company that also discloses how it ensures its workforce is ready for the future?
Turning words into action
Authenticity and accountability are essential to move from rhetoric to real progress. Statements such as “our people are our greatest asset” can be interpreted by regulators and investors as acknowledgment of how this is material to the business. Liability looms for companies that fail to follow up their words with actions. A recent CIPD study found that while 74 per cent of average FTSE 100 chief executive pay awards consisted of incentive payments, the average weighting of workforce-related metrics was only 2 per cent.
Organisations should examine proxy statements, annual reports and investor presentations for language that may be deemed material. They should also audit attraction, development and retention practices to identify and remove bias, inequity, or inconsistency. The era of greater transparency, reporting and disclosure of non-financial and human capital data has arrived. But it is not yet clear what the implications will be, based on what data companies choose — or not — to disclose.
The writer is chief research officer at the Institute for Corporate Productivity
