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Measuring a company’s real value in your annual report

“The most important asset in our business walks in and out of the door every day.”

It’s a well-worn cliché that many chief executives use regularly. It’s a cliché, but it’s true. So how do they prove it? Given that most businesses do little to measure even the most basic statistics about their employees, it would be difficult to back up this claim. Many large multinational companies don’t even have an accurate figure of how many people they employ.

When you add the other intangible assets that contribute to the success of a business, such as brand, reputation, knowledge, etc., it makes up over 60% of the real value of a company. And yet none of this is adequately measured or reported in its annual report. Historically, companies have reported only the financial information, ignoring the other 60%. There is now a move for businesses to be more transparent and to report the whole picture of how a business is doing, and this has inevitably led to the need to measure and present this additional information.

Who is pushing for this?
First of all, the market is looking for this information. Investors and analysts are still making investment decisions the way they always have by checking the company’s accounts. But they are now putting added emphasis on meeting with management, and also with those on the shop floor. Analysts find that they get further insight into how a business is actually doing by gauging how focused the management and employees are on a company’s objectives.

Regulators are also asking for more disclosure about these issues. The Financial Reporting Council (FRC) guides companies towards greater transparency about all things that have bearing on its performance.

Why should a company want to do this?
In addition to the requests by investors and regulators for this information, there is an increased demand for transparency by the customers and the general public. They expect a high level of integrity and will react quickly on social media if they perceive a problem. Most of these issues will be around employee relations and other CSR issues. Companies who measure and report data on these issues will be better placed to manage their public profile.

There are other factors, too. There is a skills shortage and it has been found that companies who measure and report information about employees and other intangibles are better at attracting and retaining employees, helping to enhance a company’s reputation as an employer.

So how can companies measure this?
Companies should start with the basics: how many employees, where they work, gender breakdown, etc. More importantly, measurements should be based on the company’s strategy, and reported consistently year-on-year. For example, if part of a company’s strategy is to attract and retain the best people, the measurements should help to prove this – revealing how much is invested in staff development, for instance. The measurements are not the same for every company: employee retention would be more important to John Lewis than it would for McDonald’s, say. Measuring and reporting data based on a company’s strategy gives the strategy itself more credibility and, ultimately, improves the company’s reputation.

So with increased scrutiny by the public, more inquisitive investors and further requirements for transparency by regulators, companies need to look closely at the non-financial information they choose to measure and report. It is essential for helping companies to better evaluate performance, retain employees and manage their reputation.

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