The Smarter Annual Report: Part 2
There is a movement underway to improve annual reporting to stakeholders, and in particular the provision of better human capital information. (See our November newsletter for a discussion of what's happening and who's behind it. You can download a copy of The Smarter Annual Report here.)
While this development represents a major opportunity for HR, it also creates a danger that HR will be unprepared and have nothing to contribute except a long list of unrelated human capital metrics that don't tell a coherent story.
We propose a simple model that helps give structure to the story of the role human capital plays in mitigating risk and creating value for an organization:
Steps You Can Take
To benefit from - and avoid being blindsided by - the emerging demands for insightful human capital reporting, you can begin with the following steps:
- Assemble the right team to work on the report, reflecting different types of performance (non-financial as well as financial); in particular, the CHRO should be involved.
- Create a rough narrative about how the organization creates value. This can include a strategy map, list of key strategic issues, list of key risks, materiality map, or some combination thereof. The point is to develop the narrative before presenting metrics.
- Let the value creation narrative guide your selection of which factors to focus on. Be sure to always combine evidence (such as metrics) with insight ("this is what the evidence indicates").
- Include the standard metrics that are expected (e.g. by GRI) even if they are not part of the core narrative. (For these it is not essential to interpret the data.)
- As you move forward, be realistic about whether the metrics you want are available.
- Work to improve your internal human capital reporting in anticipation of increasing pressure to improve your external reporting.
- Have a candid discussion on how you will handle bad news, such as falling scores on an important metric.
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Season's Greetings
We here at McBassi want to thank you for your support over the past year and wish you and your family a wonderful holiday season!
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