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Finance chiefs and human resources will have to collaborate more effectively if the new effort to standardize human-capital metrics reporting is to create maximum benefit.
John Boudreau, CFO.com | US
June 4, 2012
Tomorrow, June 5, brings us an event that won't happen again for more than 100 years: a "transit of Venus," which occurs when that planet passes directly between the Sun and the Earth, seen as a small disc moving across the image of the Sun. The transits occur in pairs, eight years apart; the last was in 2004, preceded by 1874 and 1882. The next will be in 2117 and 2125.
Also at this moment, a proposed standard for human-capital reporting, put forth by the Society for Human Resource Management (SHRM), is in the middle of its first-round public-comment period. For the standard to achieve its intended impact, there will have to be a great deal of collaboration — of the sort seen in the past relating to measurements of the transit of Venus. (In fact, lessons about scientific collaboration learned during the transits are described in two intriguing books out this summer: Searching for the Sun and Chasing Venus.)
Astronomers realized that precise measurement of the transit would give observers armed with a clock and telescope the data needed to calculate how far Earth is from the Sun. The catch was that it would require multiple measurements from specific locations all over the world. At the time, it took three months for a letter posted in Philadelphia to reach London, and the measure of one mile was different across European countries. Yet England, France, Prussia, Australia, and Russia, all of which were at war, collaborated on the endeavor.
I thought of the impending transit when I read on CFO.com on May 1 that the latest version of the proposed standard is "not a big hit with CFOs and is getting mixed reviews from analysts." That's too bad.
Supporters noted the need for better measurement standards, considering the importance of human capital to building sustainable and ethical organizations, and achieving the necessary returns on invested capital. Those in opposition said it would be impossible to agree on common factors (considering, for example, how many different definitions exist for "employee turnover" or "full-time-equivalent employee"), and that mandated standards would prove irrelevant across industries, add to the already burdensome level of information overload, and go so far "into the weeds" as to be a waste of time and effort.
But many of the comments, whether pro or con, took a "not my job" perspective. The idea seemed to be that "if the HR profession wants to pursue a standard, I will wait until it is developed and ready to go before I think about it." Unfortunately, that points to a missed opportunity. For the initiative to succeed, human-resources professionals like the ones who served on the SHRM taskforce that wrote the proposed standard will have to engage and spearhead collaboration with influential and thoughtful corporate finance executives and investment professionals.
I hope it won't be 100 years before such a standard emerges. In previous editions of this column, I have shown the value of cross-discipline collaboration in applying standard business frameworks such as segmentation, supply-chain risk, and portfolio risk in retooling how we measure and make decisions about people.
Crossing the ocean that all too often separates human resources from finance may seem difficult. But given the impact of human-capital decisions on organizational performance, CFOs should engage in and comment on the developing standards. In the 1700s, measuring the transit of Venus contributed to more-precise timekeeping and the use of sextants for reliable calculations of longitude. There may be, and I believe there is, similar potential in human-capital reporting.
John Boudreau is a professor and research director at the University of Southern California's Marshall School of Business and Center for Effective Organizations.