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Human capital dismissed under OFR guidelines

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The draft Reporting Standard for operating and financial reviews (OFRs) currently being consulted upon by the Accounting Standards Board (ASB) are missing the opportunity to improve UK productivity and competitiveness according to the Chartered Institute of Personnel and Development (CIPD).

According to the professional body, the ASB is giving insufficient weight to the role of human capital in determining organisational performance.

Angela Baron, CIPD Organisation and Resourcing Adviser commented:

“The ASB have failed to reflect the Secretary of State’s intention to embed in law the concept of Enlightened Shareholder Value. We are disappointed that the issue of employees and their relevance to long-term performance has been allowed to slip so far down the list of factors that are deemed relevant to operational and financial reporting.

“If companies are not required to report on human capital, investors will lack one of the most important sources of information to guide their investment decisions, and the country as a whole will lose out.”

Baron expressed the CIPD’s alarm at the failure of the standards to encourage businesses to develop their understanding of the value of the workforce.

“The result will be a country where we continue to place more value on tangible resources such as property or technology, which decreasingly provide any form of differential competitive advantage, than on human capital, which has been shown to be one of the single most important determinators of productivity and profitability.

“We have a wide range of research that supports our conclusion that significant business gains are to be made if organisations collect, analyse and act on all information available and relevant to their long term performance. This means considering the contribution and value of human capital in a thorough and systematic way, and in equal measure with other forms of capital.”

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Annie Hayes

Editor

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