I am always on the lookout for subjects that might have an impact on my professional world of business performance improvement and change management. The ‘Management Control Cycle’ or ‘Management Operating Framework’ refers to the way in which organisations forecast, plan, undertake work and report on work. Most operate the cycle although more from an intuitive approach rather than structured method. I tend to think of it as a four quadrant cycle, linked but with a specific theme and application in each.
The ‘Reporting’ quadrant is where performance is measured and it’s here you find the KPIs (key performance indicators) and what I like to term OPIs (Operational Performance Indicators). OPIs are essentially useful indicators that help manage the business but which are not the main drivers i.e. they are not the high impact KPIs. Reporting is obviously of critical importance to any organisation because as we all know, if you can’t measure it you don’t really have much control.
Enter the EU.
A couple of years ago a new EU sponsored ‘Non-Financial Reporting Directive’ (the ‘NFR Directive’) was approved targeted at businesses with more than 500 employees. The intention is that in December this year it will be passed into UK law with a view to its regulations taking effect from January 2017. The directive basically creates an obligation for these larger entities to provide additional information to the ‘extent necessary’ for an understanding of the undertaking’s business, its social, employee and environmental circumstances, bribery and anti-corruption related matters and human rights.
A ‘non-financial’ statement will be incorporated into the management report and will include information on the company’s business model, policies, outcomes and risks relating to the NFR Directive and any relevant non-financial key performance indicators. Additionally listed entities will be required to outline their diversity policy relating to age, gender, education and professional backgrounds, and explain the absence of a policy if relevant.
To some extent parts of these requirements have been in place under various bits of law for some time but this looks like a kind of aggregation or consolidation regulation. Its implications are obvious in the sense that organisations are going to have to find ways of improving their tracking of a new set of ‘relevant’ KPIs and they don’t have much time to work it out. Creating appropriate policies may be a fairly straightforward process but developing meaningful KPIs on bribery, anti-corruption, human rights, ‘social and employee’ related matters and the environment are not without challenges. Some organisations may have been recording this data for some time but the difference between the past and next year is the formality of regulation and of course the fact that the results (currently) look like they will need to be published in the annual report.
There might be a debate on whether some or all these new KPIs can be published on a website, or secondary report, rather than within an annual report but until that is resolved we probably have to assume that the rigors and accuracy standards of financial statements will apply.
This may not be a performance improvement issue in the productivity sense but it’s certainly part of the ongoing impact of regulation on the change management environment. At organisational level the accountabilities for tracking and reporting on this data need to be determined as do the associated processes, formats and data capture mechanisms. It’s yet another example of how macro-level drivers affect the micro-world of change.
Ref:
http://ec.europa.eu/finance/company-reporting/nonfinancial_reporting/index_en.htm#legal-framework