According to Paul Kearns chair of the Maturity Institute, in an HR magazine article, ‘What is the point of human capital reporting?’, states that the need for a method by which companies can report on their human capital has been acknowledged for many years, but is still underdeveloped.
In the US, SHRM decided that its members needed better measurement of human capital practices and attempted to produce its own standard on ‘investor metrics’, only to be met with resistance from influential CHROs, claiming that all of this effort could result in a bloated bureaucracy of data mining with no obvious outcome.
Against this hostile background, John Stewart, HR director at SSE, decided to commission a report valuing human capital, being the first UK company to carry out this assessment.
Is this the present state of play in the field?
There are too many questions.
The SASB (Sustainability Accounting Standards Board) seems to view the problem as an ‘accounting standards’ issue, while Harvard Business School’s Michael Porter has been instrumental in FSG – an organisation following a concept of ‘shared value’ and ‘social impact’.
Here are just a few that have been conflated with human capital reporting:
- Corporate social responsibility – how can we make corporations and their employees more socially responsible, rather than just profit driven?
- Diversity and inclusion – how can employment practices be made fair with no discrimination?
- Evidence-based management – the need for better evidence for better decision-making where intangibles (such as human capital) are critical
- Corporate governance – is executive remuneration broken and can we trust boards and their executive committees to do what is right?
- Accounting and auditing conventions – these do not cater effectively for intangibles of culture, innovation and integrity
- Environmental concerns – are we killing the planet in our pursuit of profit and wealth?
An organisation that has tried harder than anyone else to get reporting right is the IIRC (International Integrated Reporting Council), which posits six different types of capital (financial, manufactured, natural, intellectual, social/relationship and human) that come together in an integrated report, related to short-, medium- and long-term value.
What the IIRC fails to define is what ‘value’ actually means. The accountant’s simplest definition of value is profit margin (revenue minus cost) but there is widespread recognition that this definition is too narrow to serve wider society and the planet. The IIRC and others have been working hard to broaden this definition, but their efforts are hindered by not having any new ‘accounting technology’ to produce a meaningful alternative.
The debatable question is:
Do we create the most value possible with our human capital?
If value is defined as the best financial return possible while satisfying all other societal needs, then we might have the basis for a coherent solution.
According to the Maturity Institute, maximising societal value (defined as the best possible quality at the best possible cost) can only be achieved by maximising the value of human capital.
John Stewart’s sees his report as part of his learning journey, and he invites organisations to actively engage on how we can refine this process and create new benchmarks for business in understanding the value of the people they employ.