Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 222

Meeting investor needs with human capital reporting

The disruptive effects of technological change occupy a lot of space in the business press, and for good reason. Investment markets have witnessed significant value destruction in sectors exposed to disruption over the past 15 years, and there is much more to come with rapid advances in automation, big data, machine learning, and artificial intelligence. Some commentators describe these forces as combining to create a Fourth Industrial Revolution, with profound implications for businesses.

Few companies or industries will escape investor scrutiny as technology-enabled business models proliferate to compete with incumbents. In this rapidly changing business landscape, the information available to understand risks and opportunities is increasingly inadequate for investors to develop informed views on a company’s future prospects. Can companies protect existing products from new online competitors? Can they adapt their business models to grow new markets? These are the types of questions investors continue to struggle with.

How are people managed in the face of disruption?

Rarely are we adequately told how people are managed and organised strategically to respond to risks and opportunities from disruption. Technology is only one response to disruption. Disclosure of human capital management falls well short of market needs, especially viewed from the perspective of investors seeking to gain insights into a company’s future prospects. Where human capital reporting is absent and strategic human capital risks are material, companies may not be meeting their disclosure requirements.

For the majority of companies, a significant portion of company value is deeply connected to its people, through intangible value. This under-recognised proportion of corporate value has grown with the decline of manufacturing in OECD economies and increasing representation of service-oriented businesses, technology and finance. Today, the majority of value is held in intellectual property, brands, and people. It follows that investors need information beyond that available in financial accounts to inform invest decisions.

Companies should explain more effectively how they are applying people to maximise long-term value. Companies with superior management and advanced communication of their people strategies should be rewarded in investment markets, or should be less severely punished where businesses are highly exposed to disruptive forces.

The biggest challenge to improving human capital disclosure is joining up relevant human capital information with corporate strategies and actions. It’s common practice to disclose metrics on employee engagement or employee turnover at highly aggregated levels, which may be meaningless. Such disclosures have limited value to investors seeking to understand, for example, how a company is positioned to respond to disruptive risks and opportunities in its markets.

Addressing reporting gaps

Fortunately, Australian listed companies have an existing structure to frame investor-focused human capital disclosure in annual reports through the Operating and Financial Review (OFR). OFR reporting requirements were introduced in Australia about five years ago. It’s not a big leap to see multiple linkages here to human capital, where delivery of strategy requires significant organisational restructuring, retention of key people, or acquisition of skill sets in high demand. Human capital linkages are also apparent in other OFR reporting areas including operational status, prospects and risks.

A leading example is Primary Health Care (ASX:PRY), whose business success relies fundamentally on attraction and retention of health care professionals (HCPs) to achieve targeted return on capital invested in its medical centre, pathology and imaging service assets. Primary discloses material information in the OFR on strategic changes to HCP contractual arrangements designed to improve attraction and retention of HCPs, HCP expenditure trends, and tailored metrics on HCP attraction and retention rates for exposed business segments. Such reporting remains the exception in the ASX however, hence there is significant scope to extend and improve human capital disclosure.

Restructuring in response to disruption

Rather than an additional reporting burden, human capital disclosure is an opportunity to give greater confidence to investors about future prospects. This is especially the case where business models are vulnerable to disruption, and human capital led responses are required to engender greater workplace agility and flexibility. For example, ANZ divulged that it would comprehensively restructure its work organisation by removing hierarchies and bureaucracy, adopting organisational structures akin to those in fast-moving tech companies as a direct response to disruption risks.

Disclosure approaches to communicate fundamental human capital reorganisation on this scale is only beginning to emerge. For example, how do workforce reorganisation strategies integrate with business strategies? How is ongoing operational delivery affected by the reorganisation of human capital for product groups? What are the key human capital-related risks to execution of workforce strategies? How is progress on execution of human capital strategies measured? What bearing is human capital management likely to have on future prospects?

If you were to survey experienced investors, most would say that financial data provides a limited picture of corporate health and investment attractiveness. Most analysts achieve a more complete picture by analysing industry structure, and gaining comfort with the quality of company management, for example. Enhanced disclosure of human capital management fills information gaps to round out assessment of outlook.

Advancing meaningful human capital disclosure is a less onerous task where corporates are some way down the track of integrating their strategic and human resource functions. The opportunity to link with investor relations to improve reporting outcomes should be apparent, and the task should be one of making a case for greater integration of human capital strategies and actions in reporting. This is clearly a bigger hill to climb where HR functions are siloed or disconnected from other functions. If the company is highly exposed to disruption and management actions to address risks are poorly communicated, the market will make the case.

 

Pauline Vamos is CEO of Regnan Governance Research & Engagement. She was CEO of the Association of Superannuation Funds of Australia (ASFA) between 2007 and 2016.

  •   12 October 2017
  • 1
  •      
  •   
banner

Most viewed in recent weeks

Building a lazy ETF portfolio in 2026

What are the best ways to build a simple portfolio from scratch? I’ve addressed this issue before but think it’s worth revisiting given markets and the world have since changed, throwing up new challenges and things to consider.

Get set for a bumpy 2026

At this time last year, I forecast that 2025 would likely be a positive year given strong economic prospects and disinflation. The outlook for this year is less clear cut and here is what investors should do.

Meg on SMSFs: First glimpse of revised Division 296 tax

Treasury has released draft legislation for a new version of the controversial $3 million super tax. It's a significant improvement on the original proposal but there are some stings in the tail.

Ray Dalio on 2025’s real story, Trump, and what’s next

The renowned investor says 2025’s real story wasn’t AI or US stocks but the shift away from American assets and a collapse in the value of money. And he outlines how to best position portfolios for what’s ahead.

10 fearless forecasts for 2026

The predictions include dividends will outstrip growth as a source of Australian equity returns, US market performance will be underwhelming, while US government bonds will beat gold.

13 million spare bedrooms: Rethinking Australia’s housing shortfall

We don’t have a housing shortage; we have housing misallocation. This explores why so many bedrooms go unused, what’s been tried before, and five things to unlock housing capacity – no new building required.

Latest Updates

3 ways to fix Australia’s affordability crisis

Our cost-of-living pressures go beyond the RBA: surging house prices, excessive migration, and expanding government programs, including the NDIS, are fuelling inflation, demanding bold, structural solutions.

Superannuation

The Division 296 tax is still a quasi-wealth tax

The latest draft legislation may be an improvement but it still has the whiff of a wealth tax about it. The question remains whether a golden opportunity for simpler and fairer super tax reform has been missed.

Superannuation

Is it really ‘your’ super fund?

Your super isn’t a bank account you own; it’s a trust you merely benefit from. So why would the Division 296 tax you personally on assets, income and gains you legally don’t own?

Shares

Inflation is the biggest destroyer of wealth

Inflation consistently undermines wealth, even in low-inflation environments. Whether or not it returns to target, investors must protect portfolios from its compounding impact on future living standards.

Shares

Picking the next sector winner

Global equity markets have experienced stellar returns in 2024 and 2025 led, in large part, by the boom in AI. Which sector could be the next star in global markets? This names three future winners.

Infrastructure

What investors should expect when investing in infrastructure: yield

The case for listed infrastructure is built on stable earnings and cash flows, which have sustained 4% dividend yields across cycles and supported consistent, inflation-linked long-term returns.

Investment strategies

Valuing AI: Extreme bubble, new golden era, or both

The US stock market sits in prolonged bubble territory, driven by AI enthusiasm. History suggests eventual mean reversion, reminding investors to weigh potential risks against current market optimism.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.