Why disclosing workforce data signals good governance

Key corporate decision-makers are acutely aware that the current and future success of a business hinges on the talents and motivation of its workers. So it’s perhaps no surprise that the description company executives deploy of their people – as their company’s greatest asset – has become something of a trope. As Klaus Schwab, founder and executive chairman of the World Economic Forum, puts it: ‘Talent, not [financial] capital, will be the key factor linking innovation, competitiveness and growth in the 21st century.’ Even so, how cultivation of this human capital translates into practice has tended to be cloaked in mystery.

Companies want to be seen to be valuing and investing in their people – not least because research indicates that this is a surefire way of motivating and retaining staff, who derive job satisfaction from knowing their employer is ‘doing good’. But boards have tended to cordon off this data, citing business sensitivity. Signs are that this tendency is changing, with an increasing and necessary focus on the contribution of big business to sustainable development goals adding extra weight to the calls for transparency.

THE WORKFORCE DISCLOSURE INITIATIVE

Listed companies are accountable to their shareholders. These investors increasingly want to engage with companies on how they manage the risks and opportunities associated with the workforce.

Investors say a major barrier has been the lack of comparable data. To plug this gap, more than 80 investors with in excess of $8 trillion in assets under management are backing the pilot year of the Workforce Disclosure Initiative (WDI), which provides an accessible platform for companies to disclose key workforce information to investors via an annual survey. The information requested covers companies’ direct employees and supply chain workers.

Led by ShareAction, in collaboration with Oxfam and other stakeholders, the WDI is funded by the UK’s Department for International Development. Its goal is to improve the quality of jobs for workers in direct employment and supply chains of multinational companies. It is aiming to capitalize on the evidence that companies, investors and workers can all benefit from improving job quality.

On becoming a founding signatory to the WDI, Jeannette Andrews, corporate governance manager at Legal & General Investment Management (LGIM), acknowledged: ‘[We are] a large and long-term investor [and] information on a company’s culture and employee engagement is important to understand the sustainability of business practices and long-term prospects. The WDI provides this disclosure on a consistent and comparable basis, and is therefore an extremely useful format for LGIM to integrate into its assessment of company performance.’

WHY COMPANIES ARE PARTICIPATING

A number of high-profile companies have already confirmed they will be participating in the WDI. These firms come from sectors including construction, pharmaceuticals, property, utilities, food & beverages and financial services. Through a response to the WDI, companies have the opportunity to communicate to a significant group of investors their business strategy and how the workforce plays a role in it. Taking part in the WDI also sends a clear signal of leadership by the company. In this pilot year, it further gives participating companies the opportunity to inform and influence the process, in what looks set to become a mainstay of annual corporate reporting.

The strong investor call for more disclosure is an important driver for companies. It lends weight to the idea that collecting key data and disclosing it to stakeholders is an important part of good workforce management and corporate governance. As AXA’s Rémi Savage notes: ‘The WDI is aligned with AXA Investment Management’s strong belief that companies that are more proactive in maintaining an engaged and motivated workforce also have a better ability to sustain their corporate success thanks to higher value creation and lower business risks.’

OVERCOMING THE CHALLENGES

Companies are facing more regulatory requirements and pressure for disclosure on how they manage their employees and supply chains. Reporting requires time and effort, and companies are asked to report on a wide range of issues. Data availability, particularly in the lower tiers of the supply chain, can also be an issue. These challenges should be recognized but not overstated.

Though effort is required in the short run, the WDI process is designed to make this reporting more resource-efficient and effective. It brings together key questions from mandatory reporting standards and voluntary reporting frameworks into a single consolidated survey. The WDI closely reflects the different mandatory reporting obligations that apply to companies and also cross-references existing voluntary reporting initiatives that companies are already using.

Completion of the survey now and in future years should enable companies to understand how they compare with their peers and where the market is moving. It is not expected that companies will have all the data requested straight away. The WDI encourages companies to put in place internal procedures to start collecting this data over the longer term.

A TREND TOWARDS TRANSPARENCY

The business world is progressing toward ever-greater levels of transparency. Companies can benefit from this by understanding and managing their employees and supply chain workers better than ever. Participating in the WDI is an important step in the right direction, not least because it can enable companies and investors to identify specific areas for improving workforce management in order to build a more resilient business. As Schwab concludes: ‘Business, in particular, must rethink its role as a consumer of ‘ready-made’ human capital to proactively seek out, engage and develop people’s potential. Better data and metrics are critical to this undertaking.’

Stephen Davis is associate director of the Harvard Law School Programs on Corporate Governance and Institutional Investors, and a senior fellow at the Program on Corporate Governance. Stephen is also a trustee of responsible investment charity ShareAction.