Human Resource’s efforts to integrate itself more fully into business operations and strategy got a shot in the arm last week when an international group of institutional investors petitioned the Securities and Exchange Commission to require publicly traded companies to disclose information on human capital management policies, practices and performance.
The group, the Human Capital Management Coalition, represents 25 investment firms with over $2.8 trillion in assets. It argues for “consistent and comprehensive standards that would allow investors to better understand and assess how well the companies they own are managing their talent,” according to a press release. Currently, the SEC only requires companies to disclose headcount.
The petition doesn’t define specific metrics for reporting, but offers nine broad categories of information the HCMC says are fundamental “as a starting point to dialogue.” They include workforce demographics, workforce stability, workforce composition, workforce skills and capabilities, workforce culture and empowerment, workforce health and safety, workforce productivity, human rights, and workforce compensation and incentives. Specific data points would be developed as part of the rule-making process, since the relevance of some metrics may vary between industries and even companies in the same industry, the group said.
The HCMC contends that reporting currently required by the SEC leaves open a “critical information gap” that prevents investors from evaluating how well a company manages its workforce. Because only headcount must be disclosed today, investors can’t access basic information such as the amount of money a company spends on its workforce each year.
Much research has linked effective human capital management with improved corporate performance. HR and learning groups have long argued that money spent on training and development, health and safety, employee engagement and diversity and inclusion, among other things, lead to increased productivity, reduced turnover and higher customer satisfaction.
Studies have also shown that better HR practices can result in higher shareholder returns, profitability and overall firm performance, while poor HR practices can create substantial financial, reputational and legal risks.
Investors “need to know how companies are managing their employees and whether they’re quality, hospitable, and safe places to work,” said New York City Comptroller Scott M. Stringer, a member of the coalition. “Human capital management matters. Today we’re taking the first step and starting that conversation.”
CFO Magazine describes the HCMC as “part of a broader movement to raise awareness of a connection between how companies manage human capital and their financial and stock performance. The movement has been slowly gaining steam over the past decade.”
While the SEC doesn’t have to act on the petition, CFO noted that a number of initiatives are in play to increase disclosure of information related to human capital management, all of which may increase pressure on the commission. Notably, the International Organization for Standardization is developing a standard for human capital reporting with a goal of getting comments and finalizing in 2018. “That standard will be far more prescriptive than the HCMC petition, according to Jeff Higgins, who both counseled HCMC as it prepared its petition and is a member of the ISO committee that’s drawing up the standard,” CFO reported.
Workforce Data: Well, We Could…
While investors might like the idea of more disclosure about their human capital management practices, organizations don’t. In SAP’s 2015 Trends in Workforce Analytics survey–which included HR, IT and business leaders–68 percent of the respondents said either “no” or “not sure” when asked if workforce metrics should be a mandatory part of public companies’ reports to regulatory agencies, a jump of 48 percent in 2014. At the same time, 66 percent believed that workforce analytics “enables organizations to execute strategy,” up from 52 percent the previous year.
So employers see the value of workforce data, they just don’t want to share it. While those skeptical about the ways public corporations are managed nowadays won’t be surprised at that, both vendors and HR leaders point out that compiling numbers from HCM systems isn’t a small task and a number of data scientists say workforce numbers by themselves don’t tell stories in much of a real-world context. Besides that, more than a few people observed, anytime someone raises the notion of “compliance,” executives tend to get skittish.
Not many vendors really wanted to discuss this, even off the record, but we can’t help but believe their reticence has more to do with the regulatory aspects of the topic than the technical or product issues that might be involved. With more companies rolling out more data products at every level, it’s hard to imagine that providers of enterprise-level HCM tech solutions haven’t given a lot of thought to data challenges that involve a lot more than compiling numbers.
At the same time, we have to note the SAP’s 2015 report showed that progress in business utilization, HR’s analytics skills and both quality and quantity of data had stalled. That makes us wonder whether the capabilities of analytics technology is outpacing the capabilities (or availability) of people who might put it to use. But that’s another story.
For now, though, we’ll hazard a guess, and admittedly it’s only a guess: If regulators decide you need to disclose more numbers about your workforce, vendors will be able to help you do it, but they’re not going out of their way to say so.