Regnan is calling upon listed companies to disclose more information on human capital management, citing the “increasingly important link” between human capital management and corporate value.
Institutional investor engagement specialist Regnan says human capital constitutes “the knowledge, skills and abilities that reside in individuals, as well as the shared knowledge of employees as a group.” Regnan has issued a report providing guidance to corporates on improving disclosure on issues of material significance related to the strategic management of people.
“In companies’ balances sheets, the majority of the value is related to intangible assets, not tangible assets,” said Pauline Vamos, Regnan CEO. “We’ve been developing this for some time. There’s so much discussion about artificial intelligence and discussion of everyone losing their jobs, what we’ve done is put the investor hat on, and said if jobs change, and if the way human capital is managed changes, should be disclosed?”
Regnan sees disclosing human capital information in the operating and financial review (OFR) as being relevant where human capital management is material to operational status, strategy and prospects, and “expect companies will make assessments as to the sensitivity of specific human capital strategies, and shape disclosure accordingly.”
“The OFR requirements were introduced about five years ago to address the gaps that are there, and the OFR relates to strategy and people,” Vamos said. “But disclosure is still quite poor in this area. Some of the leaders measure culture, turnover, levels of training, employee surveys – that’s all become quite normal, but that does not meet the requirements in terms of long term strategic approach about how people are managed.”
Regnan notes in the report that disclosures on human capital are likely to be largely qualitative, supplemented with relevant metrics where quantitative data provides a more complete picture of trends.
Disclosures could include information on key employees, movements relevant to the operational performance the business, progress on integration of employees from mergers and acquisitions, availability of specialised skills relating to business model threats, availability of skills related tin industry cycles, and progress on corporate reorganisation initiatives linked to strategic objectives.
Regnan engages with companies on relevant, material human capital management issues, Vamos said.
“We’ve been asking companies about their long term strategic human capital management for a number of years,” she said. “What we would do is go through the ways we’ve outlined in the paper in terms of different questions around operational statements versus strategy. You can ask questions about team movements.”
The issue of human capital management takes on an additional dimension when considering the future of work and implications around issues like artificial intelligence.
“There is a different set of questions going to the more strategic, and that is how are you planning for the emergence of artificial intelligence,” Vamos said. “What are your strategies to retrain/redeploy employees, and if you’re looking at mergers in the future, what are your strategies to integrate people. They are legitimate questions.”
Regnan acknowledges that because this is a “less evolved” area of reporting, improving disclosures on strategic human capital management impacts will require a “multiple year” effort by companies to develop and integrate material disclosures with both statutory and voluntary reporting.