Despite reporting on the increased interest by the investment community in the value of human capital assets and engagement, CFO Publishing Deputy Editor David McCann remains skeptical that companies will readily disclose specific information on human capital management and engagement practices. The key obstacles: The majority of securities analysts and institutional investors are not demanding that companies disclose their investments in human capital and engagement, and public companies are already overwhelmed with regulations with no desire for more.
McCann has recently published two articles on the subject at CFO.com (whose parent company also runs conferences for CFOs): Big Leap Forward in Human Capital Disclosure and Should Companies Expand Human Capital Disclosure? For reasons McCann acknowledges he cannot explain, “You’re seeing a little movement in this area. Companies are under pressure to do more. The biggest news is that people are talking about it.” Perhaps, he conjectured, it’s a result of efforts by the human resources community to press the point.
That said, McCann believes it will be decades, if ever, before the Securities and Exchange Commission or some international regulatory body requires formal disclosure of human capital assets or investments as is required of research and development expenses. “Most securities analysts aren’t clamoring for it, nor are the institutional investors outside of a few,” he explains. Still, he says, the efforts of the Human Capital Management Coalition and others is “just another stone on the path toward someday the emergence of a major transition where human capital disclosure and engagement are taken seriously by CFOs and investors.”
In his abovementioned article, McCann reported that the organization known as Principles for Responsible Investment (PRI), a United Nations-supported network of about 1,500 institutional investors worldwide, has a subgroup of 24 members with collective investment capital of $1.5 trillion whose efforts have successfully improved human capital disclosures at 22 companies.
The pace of change will speed up, McCann feels, if more securities analysts and institutional investors join the ranks of organizations such as the Human Capital Management coalition of pension funds This organization has developed a strategic plan to quietly approach the executive teams of leading public companies to express their desire for more specific information on human capital investments, including employee engagement, incentives, learning, communication, measurement and more. See: “$26 Trillion Investor Coalition Sees Link Between Human Capital Management and Shareholder Return.” McCann says that it’s his understanding that these meetings have been cordial and that progress was more likely to be made quietly and organically.
For internal management or engagement solution providers attempting to sell organizations on the value of engagement, McCann suggested that CFOs would be a great place to start. However, he notes, CFOs tend to be skeptical of human resource initiatives put forward by a profession he says that has for years tried to get a seat at the executive table. Many CFOs, whether or not they will say it on the record, look at HR as a soft discipline.”
To convince an organization to take a more strategic approach to engagement, says McCann, “The CFO might be a great path. These are the decision makers. They’re also the people that say no. They say no when they don’t see a clear ROI from an investment, and most have seen a lot of investments in this area that have not paid off as planned. They will question very seriously any claims on ROI and are likely to reject them. They’re skeptical people by nature. It is tough for anyone trying to reach the CFO.”
Another hot button for CFOs is the topic of adding human capital to general disclosure requirements, which McCann says have risen significantly over the years in other areas of business. “Companies aren’t anxious to disclose anything more than they have to, and they need to be convinced that there’s a benefit to doing so.” He points out that many organizations only pay lip service to the value of engagement and therefore have no interest in disclosing those investments.
McCann acknowledges that while the amount of academic and other research on human capital asset value and engagement may have grown, he reiterates that anyone trying to make the case about engagement with a CFO will have to show a clear return on investment. “Unless a CFO has spent time at the front lines of a particular department, such as human resources – and there are only a smattering of companies that rotate CFOs in this way – it will be difficult for many to understand the value of engagement.”
To break through to CFOs, McCann says the key is to think "with a finance hat on" and present a clear business case: “Many CFOs privately complain that human resources management doesn’t think like businesspeople.”