At recent Annual General Meetings (AGMs), some companies listed on the Nairobi Securities Exchange (NSE) presented financial reports that had received favourable audit opinions from external auditors. Despite incorporating a section related to HR, there was an omission of HR Audit Reports.
Yet, it was the companies’ employees who significantly contributed to their financial outcomes. This omission sparked shareholder curiosity about unaudited well-being of employees. Here are potential benefits of requiring mandatory HR Audit Reports for NSE-listed companies.
Transparency and Accountability
Mandating HR audit reports to be presented at AGMs by independent HR firms would introduce a new level of transparency and accountability for listed companies. Just as financial audit reports provide insights into a company’s financial health, HR audit reports would offer a detailed view of workforce management, talent development, employee satisfaction, and diversity initiatives. Shareholders would gain access to comprehensive information that helps in assessing the company’s ethical standards, compliance with labour laws, and HR-related risks.
An independent HR audit would discourage companies from manipulating HR data or concealing pertinent information. This practice would foster trust and confidence among shareholders and enable them to make more informed decisions while investing in listed companies. As a result, this increased transparency would lead to higher corporate governance standards across the NSE.
Risks and Opportunities
An independent HR audit would involve a meticulous analysis of a company’s HR practices and policies. Such scrutiny could uncover potential risks and opportunities that may have otherwise gone unnoticed. The audit could highlight issues such as workforce skill gaps, inadequate training programmes, high employee turnover, or inadequate diversity and inclusion initiatives.
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When these areas of concern are identified, companies will take proactive measures to mitigate risks and capitalise on opportunities. This preventive approach can result in improved workforce productivity, better talent retention and enhanced overall organisational performance.
International Standards
The NSE aims to establish itself as a prominent player in the global financial market. For this vision to materialise, it is essential for listed companies to adhere to best international HR practices and standards. Mandating HR audits will demonstrate NSE’s commitment to fostering responsible business practices and aligning with global standards in corporate governance.
These HR audits would cover critical aspects such as workforce diversity, inclusion and employee well-being and have them aligned with internationally recognised standards. As a result, listed companies would become more attractive to socially responsible shareholders. Such shareholders seek to invest in companies that prioritise their workforce and actively contribute to social and environmental progress.
Strategic Decision-Making
An HR audit report would equip company managements and boards with valuable insights to facilitate strategic decision-making. When companies understand workforce’s strengths and weaknesses, they can tailor human capital strategies to align with organisational goals effectively. This data-driven approach would enable companies to allocate resources efficiently, optimise talent acquisition, and align HR initiatives with overall corporate strategy.
In addition, the HR audit report can also serve as a benchmarking tool which allows companies to compare their HR performance with industry peers and identify areas for improvement. This competitive analysis would foster a healthy environment for continuous improvement, nurturing innovation, and driving organisational productivity.
Employee Engagement
Employee engagement and productivity are pivotal factors that influence a company’s growth. External HR audits will encourage companies to invest in their human capital amid promoting employee welfare and development. An engaged and motivated workforce leads to improved productivity, lower turnover rates, and reduced absenteeism.
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HR audits can shed light on employee satisfaction levels, workplace culture, and professional development opportunities. Armed with this information, companies can make targeted improvements that foster a positive work environment and further enhance employee engagement and performance.
Legislation of HR Audit
To enforce this essential measure, relevant authorities such as the Capital Markets Authority (CMA) and the Nairobi Securities Exchange (NSE) need to collaborate with regulatory bodies and industry stakeholders. The implementation process would require careful consideration of factors such as reporting guidelines, disclosure requirements and the appointment of independent HR firms.
The writer is HRD Consultant and Author of Transition into Retirement; [email protected]
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