Organisations agree the way staff are managed can affect productivity. So it makes good business sense to be able
to quantify your people
If you look closely at an organisation’s annual report and accounts, the
chances are that it will include a phrase along the lines of ‘people are our
greatest asset’. You might see lots of pictures of happy staff, but more than
that is unlikely, apart from a paragraph on staff costs and the way the
workforce has been downsized over the past 12 months.
As shareholders leaf through pages of minute detail on a senior executive’s
remuneration package and potential earnings pot, they might like to stop and
think for a minute. While that sort of information is interesting, is it really
helping them to understand how effectively the business is being run? Is it as
significant as hearing how the human capital assets that drive the business are
Human capital management is a mix of the way that organisations manage,
recruit, retain, train and develop employees. It is about looking at people as
a valuable business asset, not just a cost. It is about making sure that you
have people with the right skills and experience to deliver your business
strategy, both today and in the future.
Paradoxically, while external measurement of the people effect is so
limited, there is widespread and growing acceptance from within organisations
and investors that the way in which people are managed is a key source of
competitive advantage and ultimately, profitability.
A plethora of industries from service businesses through to manufacturing
admit there is a causal link between good human capital management and strong
fiscal performance. They know they are, to use a cliché, in a bidding war for
talent. If they do not employ, nurture, develop and retain the best people,
then their competitive edge will be blunted.
If talented workers – which a company spends time and money employing and
training – are not managed properly, they will leave. Often falling straight
into the welcoming arms of the competition, with potentially devastating
effects. Organisations then have to spend further time and money on recruiting
As an investor, the chances are you will not be aware that this has
happened. You won’t have any means of judging the impact, good or bad, that the
business’s human capital management has had on performance.
Why are organisations so loath to tell people about the measures they use to
track their management of this human capital treasure? Some might argue that to
do so would give away competitive advantage, and yet they relatively freely,
disclose a mass of financial data that is just as sensitive. Others might claim
it is too heavy a burden to undertake. Yet many organisations keep human
capital information internally. What prevents them sharing that with others?
A reticence to commit to a proper assessment of human capital management
could be influenced by many factors. The keepers of human capital information
are still regarded as administrators and are not invited to the boardroom
Other anecdotal evidence suggests that organisations simply do not have the
systems or wherewithal to collate or measure the effects of the way in which
they manage people. How many organisations have at their fingertips simple,
accurate information about the number of people they actually employ? Perhaps
most significantly, many organisations don’t have the key performance
indicators that tell them if they are doing a good job. If managers collected
hard data, they would be in a position to manage what had been measured.
By this autumn – following extensive consultation with industry, the
accounting profession, trade bodies and the investment community – the
Accounting for People Taskforce (which I am chairing) will have delivered best
practice guidelines that can be used to create a statement for inclusion in the
annual report and accounts. We are not looking to put people on the balance
sheet, but to at least make a proper assessment of the effect of human capital
management by looking at the number of employees, staff turnover, staff
development and employee satisfaction, for example. That would be a
demonstration of the quality of management, that is too often neglected.
By doing this, we may finally give ‘our greatest assets’ – our people – the
prominence they deserve and begin to properly reward organisations that
recognise the significance of managing people well.
By Denise Kingsmill, Deputy chair, Competition Commission, chair
Accounting for People Taskforce
To read the Accounting for People Task Force consultation document go to www.personneltoday.com/features