Companies Are Made of People: The Importance of Human Capital Management

When we think about companies and the work they do, we often lose sight of a simple fact: a business is just a collection of people. And, all groups of people tend to build a culture, a collective way of viewing the world.

It may seem like an obvious point but it’s all too often overlooked.

This is definitely the case when it comes to the disclosure of corporate sustainability information, often referred to as environmental, social and governance (ESG) disclosure. The businesses that report on these issues are typically more comfortable with the E and G, but they tend to have a much harder time with social issues. This is a little ironic because of companies are, in essence, social networks. But it’s understandable because this category of information can be quite sensitive.

Company leaders know that workers are the lifeblood of business success. They create all of the goods and services that make the company profitable. But, when it comes to public reporting, companies are often reluctant to disclose workforce information.

Enter the Human Capital Management Coalition. This groundbreaking effort aims to increase disclosure of information on how US corporations are managing their workforces. Currently the US Securities and Exchange commission (SEC) SEC only requires disclosure of the number of employees or headcount, without further detail. This new initiative, including 25 institutional investors representing over $2.8 trillion in assets, has submitted a rulemaking petition to the SEC to require listed companies to release information on workforce management covering nine areas:

1. Demographics: Such as the number of full-time and part-time workers, the number of contingent workers, and policies on subcontracting and outsourcing,
2. Stability: Such as voluntary and involuntary turnover, and the internal hire rate,
3. Composition: Such as diversity, pay equity, policies, audits, and ratios,
4. Skills and capabilities: Such as training, alignment with business strategy, and skills gaps,
5. Culture and empowerment: including employee engagement, union representation, and work-life initiatives,
6. Health and safety: including work-related injuries, fatalities, and the lost day rate,
7. Productivity: including return on cost of workforce, and profit/revenue per full-time employee,
8. Human rights commitments and their implementation, and
9. Workforce compensation and incentives: Such as bonus metrics used for employees below the named executive officers.

The Human Capital Management Coalition includes the California State Teachers’ Retirement System, the AFL-CIO Office of Investment, the offices of the New York State and New York City Comptrollers and the Ohio Public Employees Retirement Plan, to name just a few. The coalition is headed by the UAW Retiree Medical Benefits Trust, whose Chief Corporate Governance Officer, Meredith Miller told me why she believes this effort is significant for investors:

“The petition underscores that investors are keenly interested in human capital management information as a way to most efficiently allocate our dollars toward companies that will succeed over the long-run. Studies show that companies that effectively manage their talent simply perform better. Boards of directors and corporate management are starting to see this, too, and our petition seeks to encourage those companies to tell their stories.”

I couldn’t agree more and I hope the SEC will take up these recommendations. But even before there is official, regulatory action on this front, I urge leading companies to voluntarily disclose this vital information using the GRI Sustainability Reporting Standards (GRI Standards). Most of the topics outlined by the Human Capital Management Coalition are covered in the social series of the GRI Standards: new hires and employee turnover, occupational health and safety, training and education, diversity, non-discrimination, and human rights, to name only a few.

For many years now, corporate responsibility leaders have a gained business advantage by managing and reporting “ESG” information. Because the workforce is the lifeblood of the business, disclosing the information called for in this petition, will provide investors and their other stakeholders with critical insights on the health of the company. And, as we have learned time and time again, excellence in these critical areas often translates to increased return on investment.

The Human Capital Management Coalition SEC Petition can be viewed here.