The Challenge of Mainstreaming Human Capital Reporting

The Challenge of Mainstreaming Human Capital Reporting

David McCann at CFO Magazine takes a look at two groups—Principles for Responsible Investment and the Human Capital Management Coalition—that are working to encourage more organizations to publicly disclose human capital metrics like turnover, absenteeism, and employee engagement. It’s an uphill battle for these advocates, McCann writes, as not everyone is convinced that these metrics are worth using or disclosing:

[A] former finance and marketing executive waves off the notion that such data is a good barometer of management quality. Tom McGuire, now talent strategy leader at Talent Growth Advisors, says: “Whether a company is well-run is a good question, but a more relevant one is, how do its people impact its value? To understand that, you need to look at the company’s intellectual capital—patents, brands, and proprietary technologies and methodologies. The only source of any of those things is people.”

For that reason, McGuire also quarrels with the idea that disclosure about a company’s entire workforce has much value. … Similarly, [Jeff Higgins, CEO of the Human Capital Management Institute,] points out, if you lose 20% of management in a year, that’s way too high. Losing 20% of your call-center workers is OK. It’s also fine if 20% of a retailer’s customer-facing staff is lost. But it’s disastrous if a professional services firm has 20% turnover among customer-facing professionals. The metrics that come out of the investor groups’ engagements with retailers may be used to compare the companies with one another, but it’s unknown how granular the information is, so therefore it’s unknown how useful such comparisons will be.

This discussion shows that investors are starting to understand the importance of human capital when looking at the value of a company and looking for ways to get data and information related to that. But actually understanding what the metrics are saying and how to interpret them is harder than it may seem. This might be a place where talent analytics professionals and HR leaders more broadly can step in and educate their peers in corporate leadership about not only which metrics to share but also how to think about them. People data is only going to be as strong as the story built around it.

One potential barrier to increased reporting of human capital metrics (and the usefulness of that data to compare the relative value and performance of companies) is the need for an equivalent to generally accepted accounting principles for these measures. The Center for Talent Reporting has been doing interesting work in this space and has created what they call Talent Development Reporting Principles (TDRp) as a standard for human capital reporting. (CEB Learning & Development Leadership Council members can watch our 2014 webinar with Dave Vance, the Center’s Executive Director.)

To that point, McCann notes that HCMC has started its push for disclosure with retailers. This makes sense, because in retail, there are objective human capital measures with direct links to the bottom line: If staff aren’t on the floor or knowledgeable about products, customers won’t buy. Those links are harder to draw in other industries. There is also a challenge in deciding how to measure certain metrics. Absenteeism and turnover have near-universally accepted definitions, but building momentum for mainstream reporting of metrics such as engagement and productivity is a heavier lift given the competing definitions of these indicators used by different vendors, which makes benchmarking across firms impossible for investors and analysts.

Improving human capital data collection and reporting are worthy endeavors when it comes to better understanding and communicating the value of talent, but given these challenges, it’s not hard to see why efforts to make human capital reporting a standard practice have been slow to gain steam.