The role of the Financial Reporting Council’s Lab is to help to improve the effectiveness of corporate reporting through examining and reporting on specific areas. Its latest report looks at how boards consider and report on the organisation’s workforce. The Lab report offers some interesting insights and potential questions for the governing bodies of higher education providers.
The Financial Reporting Council’s Lab has published a timely report on workforce-related corporate reporting. The 2018 update of the UK Corporate Governance Code contained specific provisions on a board’s engagement with the workforce.
Although the Lab’s report is focused on public companies, many of the issues discussed can be linked to the two higher education codes of governance [ie the Committee of University Chair’s (CUC) Code, and the Scottish Code].
The higher education codes
The need to consider the resource base and to engage with the stakeholders is included in the recently published 2020 draft CUC Code. This highlights the need for the governing body to:
- receive assurance there are sufficient and appropriate human resources in place to support the business plan (para. 2.2)
- consider the alignment of the values of the organisation and its culture (para. 5.5)
- be effective two-way communication with relevant stakeholders (para. 6.2).
Similarly, the Scottish Code suggests the Chair of a governing body should ensure the “institution is well connected with its stakeholders, including staff and students.” (Section 6, p.19).
The Lab report
Examining current corporate reporting, the Lab suggests there is often a lack of consistent disclosure on workforce matters, and a failure to clarify whether the workforce is a strategic asset or its relationship to value creation.
The Lab report examines workforce reporting under four headings:
- governance and management
- business model and strategy
- risk management
- metrics and targets
The report contains a discussion of each of the four areas, examples of practice drawn from current annual reports and a set of questions for companies to consider. The questions are also available in a separate document.
A key theme throughout the report is understanding “how boards consider and assess workforce issues.”
Governance and management
Compared to some workforce topics, matters relating to culture, motivation and engagement are more difficult to address because of their strategic and interconnected nature.
The report acknowledges that some aspects of a board’s responsibilities in relation to the workforce may be delegated to board committees. This is frequently the case for higher education providers, with many having a Personnel (or similarly titled) Committee.
Questions suggested by the report include “What is it like to work in the company, and how does the board get sight of the workforce’s views?” As well as “How does the board interact with the workforce without management present?”
Business model and strategy
While the workforce is a cost, it is also an asset. Linking the workforce and the business model helps explain an organisation’s competitive position. This leads to the question: how does the workforce drive value?
Further, the UK Corporate Code suggests that “the board should assess and monitor culture.” Which, in turn, leads to the question of “what culture do we want?”
Are workforce-related risks quantified and assessed? Is there an assessment of the changes to the risk profile during the year?
Metrics and targets
When selecting metrics and targets, organisations should strike a balance between data and narrative. Questions can be raised around whether the metrics and targets are linked to the business model, or are aligned with the strategy.
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