McDonald's chief people officer: Valuing your Talent will want input from businesses of all sizes
David Fairhurst, December 12, 2013
Placing a value on an organisation is notoriously difficult. Royal Mail, for example, was established in 1516 and in 2012 made a profit of £211 million.
When it floated in October the Government valued the business at £3.3 billion, selling shares for 330p each. However, at the time of writing the share price had climbed to around 590p, making Royal Mail worth almost £6 billion.
Twitter, on the other hand, was founded just seven years ago and is yet to make a profit.
However, when its shares were floated last month the value placed on it by investors on the first day of trading was about £19 billion. That's £8 billion more than the company's own valuation.
These massive variations are because deciding an organisation's value depends on the assessment of a range of factors, some tangible and measurable (cash, infrastructure, property) and some intangible and difficult to quantify (intellectual property, natural resources, stakeholder relationships).
Investors clearly believe that Royal Mail has tangible assets of significant value, but they have decided to place an even greater value on the largely intangible assets of Twitter. However, because their assessments of value are made more on gut feeling than on hard facts, the long-term wisdom of their decisions remains to be seen.
In September, HRmagazine carried a feature, "The reporting revolution", on the development of the International Integrated Reporting Framework, which will be published this month. This framework is based on the six "capitals" organisations use to generate value: financial capital, manufactured capital, intellectual capital, human capital, social capital and natural capital.
It's hoped that, by looking at how effectively an organisation is harnessing these capitals, investors will be able to make a more objective assessment of the value of a business and its long-term sustainability.
The feature concluded that, historically, there had been "a lot of focus on getting financial reporting right. Sustainability was the next area. The next phase will be human and intellectual capital - that's where exciting things are going to be happening. Now it is up to HR to seize the opportunity."
And I'm delighted to say that the profession has begun to do that.
At last month's CIPD annual conference, the institute's chief executive, Peter Cheese, launched a major partnership initiative - Valuing your Talent - which brings together the UK Commission for Employment and Skills (UKCES), Investors in People (IIP), CIPD, the Chartered Institute of Management Accountants, the Chartered Management Institute, and the Royal Society for the Arts. The team's objective is to establish a set of indicators and tools to help businesses objectively value and invest in their human capital.
This initiative has an "open-sourced" ethos. So, as well as seeking views from professional bodies, the team will also want input from businesses of all sizes and stakeholders from across sectors.
In 2014, IIP will launch a refreshed framework that will seek to integrate the learning from the project. By making it freely available, the UKCES and IIP believe that this project will ultimately make a significant contribution to spreading and promoting best practice.
I agree, which is why I was happy to accept the invitation to chair the project team. For more about how your organisation can contribute to the project, visit the Valuing your Talent pages on the CIPD website. And, through the pages of HRmagazine, I'll keep you posted on progress.
David Fairhurst (pictured) is chief people officer, Europe, at McDonald's