Investment in Human Capital: It Appears Most Stakeholders Can't Be Bothered
Rather sadly, an analysis suggests that workforce data is largely ignored by analysts when assessing an organization.
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It's a common trope that organizations proclaim their people as their biggest asset. A recent report for the Chartered Institute of Personnel Development (CIPD) by researchers from the University of Kansas and Warwick Business School suggests the reality might be somewhat different.
The paper set out to explore whether investors value human capital data, and if they do, what kind do they seem to prefer. Rather sadly, the analysis suggests that workforce data is largely ignored by analysts when assessing an organization, with the authors suggesting this might be because it's hard to find, with organizations not generally making such data public.
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This is surely an oversight, as I've previously covered research showing a clear link between employee engagement and profitability, whether due to higher productivity, lower turnover rates and absenteeism or various other factors that underpin company success. The authors believe that it is perhaps time for this information to be shared with investors.
"Results have shown us that how you manage people as a firm has long-term effects on profitability," they explain. "Yet we've found that investors aren't using those data to evaluate potential investments when it would be in their interests to do so. So why the disconnect? We said, 'Why don't we directly ask the people whose business it is to advise investment decisions?'"
At the moment, few companies disclose human capital data, and there are no laws requiring them to do so. The report suggests that a primary reason for keeping this data under wraps is that companies don't want to reveal company secrets, although there is also undoubtedly an element of not wanting the hassle of doing so.
This alone does not explain the ambivalence of investors however, as even when the data is available, it's largely overlooked. Data around things such as employee turnover rates, the median pay, job satisfaction, and overall number of employees are rarely used, with investors focusing instead on areas such as corporate governance and executive pay.
There is also a large dollop of tradition, as human capital has rarely been a factor in financial analysis of a company, and so few analysts buck the norm. Indeed, the authors believe that the entire sector is intensely risk averse, and so few analysts are willing to go against the grain and include 'unusual' factors in their analysis.
Making workforce data accessible
The authors go on to make a number of recommendations to try and open up workforce data, and indeed to get analysts using it.
- Businesses should take the lead in reporting workforce information more readily to their external stakeholders
- Businesses should work with their leadership and human resources teams to define management quality and communicate this to their key stakeholders
- Both the investment and regulation communities should explore the standardization of human capital information
- Investors should look to improve their understanding of workforce issues and human capital data.
"We therefore conclude that workforce issues are emerging from being a niche concept to something more central and critical to investment practice for many investors," the authors suggest. "With this there is increasing scope for new engagement practices and improved dialogue on workforce issues using people data."
Arguably, the forerunners will be those who are leading the pack in rankings like the Best Place To Work index. It would be easy to imagine companies who can clearly demonstrate a happy and engaged workforce being more open about sharing that information, especially when there is such a clear link between engaged employees and a profitable business.
"Successful workforce management is really valuable and really difficult. If they're really good at it, they should publicize it, and not just as a brief throwaway comment in the annual report. If you can back it up, it can give you an edge in the capital market," the authors conclude.
Published at DZone with permission of Adi Gaskell, DZone MVB. See the original article here.
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