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Integrated reporting requires influential HR

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The success of integrated reporting relies on HR taking the opportunity to ramp up its influence on strategy and value creation, experts have said.

HR must become central to an organisation’s strategy and how it creates value if integrated reporting (IR) is to succeed, industry figures argue. Experts believe the inaugural IR framework, released in December, gives HR a platform to become a critical voice within business and demonstrate the value it delivers.

“Without HR involved in the strategy and value chain of a business, IR will show a weakness in the organisation,” International Integrated Reporting Council CEO Paul Druckman said.

Current corporate reporting is focused on short-term financial results with commentary on CSR as a bolt-on. IR places areas such as human capital at the heart of the reporting process. Organisations will need to break down siloes and become interconnected, referred to as ‘integrated thinking’, which is where HR can gain prominence as human capital affects all areas.

“In some companies, HR will need to be much more central in the whole process. The challenge is to have the seniority and expertise to be in the middle of an organisation,” Druckman said.

“I see it as a huge challenge for HR, where it is no longer a back-office service, but seen as part of the value-creation process.”

Drive for consistency

CIPD chief executive Peter Cheese said HR needs to be more articulate in measuring human capital value and collaborating with other functions, such as the finance department: “People increasingly recognise these are important things to have more consistency on, but the fact we haven’t got them also indicates the difficulty in defining them.

“If we can agree a clearer framework of what these metrics should be, then one of the things we would want to do is come back to the IR framework and see if some of these things can be embedded in future iterations of the framework.”

Druckman told HR magazine that a consistent approach and methodology in the way firms value human capital is an important goal, provided there is flexibility. He said industry- specific metrics and best practices could be referenced in future versions of the framework.

But HR will need to shift its focus if it wants to take advantage of this opportunity, commented Geoff McDonald, Unilever’s global VP of HR for marketing, communications and sustainability.

“[IR] does not seem to be on the HR agenda as most HR functions are not strategic enough, don’t sit on the main board and continue to be focused on transactions and the hygiene factors of performance and talent management and so on,” he said.

Another challenge, said Mazars Netherlands partner Marie-Pauline Lauret, is for HR to “become a real part of discussion”.

“HR is a part of value creation, it’s what makes the creation,” she said. “HR needs to push that item in the board discussion.”

Breaking down silos

Cheese believes IR provides HR with an opportunity to have a greater voice and demonstrate real value to business.

“Any faction that continues with rhetoric that this is somehow take over by the finance functions is frankly too rooted in the past or thinking about a siloed world where HR has its silo and finance has its silo," he said.

"The reality is HR is a business function and we do need to work with finance to collectively better understand where and how human capital value and how to enhance that value."