Should we have people and culture disclosure in the annual report?
I’ve gone on record several times as saying people and culture reporting belongs in the boardroom. But does it belong in the annual report?
The idea of putting people and culture metrics in the annual report is a good one. It comes from the notion that people and culture matters. If it matters we should measure it and we should hold our senior leaders accountable to it.
The best-performing companies of recent times make this data — engagement survey results and a range of other people and culture metrics — reportable all the way to the board. This leads to deep and strong conversations at the board level about what to do with the results. But how much detail should make its way into the public domain? Is there a point where reporting becomes counter-productive?
In my opinion, the answer depends on whether the metrics in question are trail indicators or lead indicators.
The good: Trail indicators are fine to report
When the metrics involved are trail indicators — results and outcomes of prior initiatives — go ahead and report.
Factors like the diversity and the makeup of the organization, or retention and attrition numbers are outcomes that are the result of months, even years, of activity. They are historical figures that can’t be changed and can be valuable in keeping the executive accountable and providing organizational insights. This data can hold companies to account not only to where they are, but where they are going and how they have changed over time.
The bad: Breaching trust and impacting answers
The challenge arises when reporting lead indicators, which require people to engage in the process of telling you what’s going on. If people know the results are going to be made public, it may affect how they respond to a survey for a number of reasons. Reminiscent of Heisenberg’s uncertainty principle, the act of observing can influence the phenomenon being observed.
The very act of putting some information in the annual report runs the risk of negating the value of gathering that information in the first place.
People and culture surveys work best when this data is shared in a trusted space and is used to facilitate conversations. If you use the results outside that space, you breach that trust. On the other hand, if you tell people up front that the results are going public, it has the potential to impact the answers they give.
The ugly: Turning people and culture into vanity metrics
Where it becomes widely known that certain metrics will be made public to investors, it opens up the risk that those numbers will be gamed to such an extent that they become meaningless.
The biggest risk is that it becomes a vanity metric. Companies will report the number that their shareholders want them to report, and it will get in the way of getting real feedback on the culture of the organisation.
If a public company were required to disclose its engagement score, your people will know that how they score the company will affect the stock price. Potentially some of those people own shares. Joining the dots is not difficult here.
An analogy is we often get asked whether to use engagement scores to set bonuses for senior managers. At first glance, it seems like a good idea to hold people accountable to a number. The problem is it is open to abuse.
The manager may be the person who sets salaries. When people and culture surveys come up they remind people that their bonus is set by the scores they give him or her.
It means that rather than run the surveys in the hope of finding out what is actually going on, they are run to maximize the potential of a good score.
To report or not to report
The only indicators it definitely makes sense to include in an annual report are trail indicators. Anything further up the stream needs to be given careful consideration as to what the company hopes to achieve by going public. Otherwise you run the risk of taking something that could be a powerful driver of change, and turning it into a token that the company is reporting because they have to.
People and culture certainly belongs in the boardroom, but there are some pieces of information that should be kept between you and your people.