PracticeAccounting FirmsMissing the human element

Missing the human element

Make human capital reporting accessible to investors

Most organisations’ operating models consist of a high proportion of people
costs related to other costs. Given the expenditure and challenge in managing
these ‘assets’ well, why in the age of supposedly transparent corporate
reporting is the human capital element so poor?

There are no standard frameworks for managers to use to report human capital
and, although there have been a number of previous failed attempts at
measurement, expertise and applications have been in short supply. From a
resource point of view, organisations naturally default to avoid the process,
rather than engaging further. Thus, any reporting has tended to be qualitative
and driven by the minimum from a compliance perspective.

For too long management, has not embraced the reality of the real
differential that good management/ leadership produces.

Investors are not as sophisticated as the market would like. The
understanding of business models and organisational dynamics is far less than
one would expect. That said, from a human capital perspective, investors need
some form of analysis that provides them with insight. Their understanding will
drive management focus to report related quantitative elements of human capital.
This would assist the ‘market’ in receiving more transparent reporting.

There are three ways to put it right. First, the ‘market’ needs to be
provided with reporting standards on human capital that parallel accounting
principles and also enable more detailed metrics which provide meaningful
comparison.

Secondly, too many managers (and investors) have had little exposure to the
vagaries of human capital management and organisational performance. Very few
understand measurement as a discipline because practical training has not been
available. Understanding what organisations are dealing with will provide the
necessary platform for resource allocation and direction.

Lastly, given what investors (and stakeholders) are used to, a composite
index relating to human capital would provide them with insight. This is very
much on the proviso that it has a robust construct and differing performance
characteristics.

The great news for organisations, managers, investors and stakeholders alike
is that all of the above are available. The only question now is the old one of
overcoming ‘market’ apathy and ignorance.

Nicholas J Higgins is CEO of VaLUENTiS

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