Should Companies Expand Human Capital Disclosure?
The cover story for the November 2011 edition of CFO magazine, "Power from the People," introduced a topic that had been discussed among human capital experts for some time but had been the subject of little media coverage. The discussion was about whether investors and other stakeholders would benefit if publicly held companies reported more information about their work forces. Human capital "disclosure" had been mostly limited to executive compensation data, executive succession plans, ..
Corporate reputations are contributing $3.3 trillion of shareholder value across the S&P 500, according to Reputation Dividend’s 2015 report. Of that value, almost $1 trillion is derived from perceptions of people management and management quality.
So, should companies annually disclose HR metrics or people data that enables investors and other stakeholders to understand the state of human capital within the organization? Sure they should.
But they should also be careful. What aspects of human capital data they choose to publicly disclose should vary according to the sensitivity of various data and their relative importance to competitive talent strategy.
Considering the varying needs external stakeholders is a key for deciding what to disclose. Investors are looking for ROI-related metrics and innovative people strategies driving growth and profitability. Analysts are looking for leading indicators of a sustainable organization. Customers and prospective employees are seeking information on the organization’s culture and work environment.
Yet, regardless of whether a company chooses to publish this data, there are multiple avenues for stakeholders to access some of it, through independent surveys, industry accolades, benchmarking information, and social media platforms.
Indeed, most employees are already discussing this information through such platforms, anonymously or otherwise. That’s why companies should consider publishing it voluntarily: it can help them lead and inform the conversation around human capital.
Data around talent that is joining the company (acquisition sources, cost and quality of hire, employer attractiveness, sentiment analysis), growing (mobility, diversity of talent), thriving (rewards and recognition, engagement, health, and safety), and leaving (regrettable losses) could be all strong indicators of the health of the company’s talent and people processes.
There is an opportunity for HR to stimulate thinking on disclosures. Accenture recently chose to publish diversity statistics in order to indicate its commitment to diversity. BNY Mellon’s pioneering work to publish a new “People Report” this year, sharing workers’ opportunities and successes in driving business outcomes, illustrates a deep commitment to talent development and retention.
But while we advocate for measurement (wide and deep) and disclosure (selective and targeted), there are some critical challenges to be considered regarding human capital data disclosure:
- There are no agreed-upon global standards and definitions for human capital reporting (headcount, turnover, talent) similar to those provided by FASB or GAAP in accounting. The wide variations in definitions and calculations across organizations around basic metrics may result in misinterpretation.
- People management and people strategies are nuanced; there are fewer absolutes in HR, since a range of choices around people management are available to organizations.
- There should be a strategy and a narrative for disclosure, as opposed to a set of basic metrics that are descriptive organizational averages and drive no insight (average turnover, average time to fill, overall human capital ROI). Simplistic comparisons of metrics across companies may be flawed. Internal hire rates vary depending on a build or buy talent strategy. Investment in leadership development may depend on the maturity of a business. And lower people costs are not always better, deeper investments are required to drive growth and performance.
Unless these issues are addressed, human capital disclosure will continue to be voluntary and not regulated, and at the vision and whim of HR leaders.
Usha Mirchandani is a partner in the Talent, Rewards and Performance practice at Aon Hewitt, a human capital solutions firm. Eddie Short is a senior partner in the practice, leading the firm’s data and analytics strategy for global clients.