Whither HR: people are our biggest liability...


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Where is human capital going? Thank you for the question. The answer is: nowhere.

Say more?

Well I can be equally brief: in the first place, 'human capital' has been going nowhere for quite some time, so the odds remain good that it still isn't going to get much further any time soon.

HCI (Human Capital Institute) and Aberdeen Asset Management, two of the heaviest hitters on the scene, and a hundred websites have been going at it hammer and tong for years. So, no blame to them. "We have 3,000 articles on the subject and 67 new discussions and 32 comments"... Yawn. The sad truth is that 'human capital' has now joined 'engagement', 'the war for talent', 'people are our biggest asset', and the word 'iconic' itself, as terms empty of meaning, debased through overuse and lazy thinking.

You want a more positive message?

OK – try, "people are our biggest liability" – instead of biggest asset. It is a concept that still has somewhere to go at least, given that few organisations have come to grip with the risks, and therefore the costs, of people's behaviour at work. I am talking about employer behaviour too, 'by the way', as much as employee. Just costing such behaviour would be a positive step forward.

What would I personally do if I ruled the world?

At the end of the day, there are three things you can do with human capital: measure it, manage it and report on it.

One at a time...

Measuring it... you can't. Full stop, period, end of story. It can't be done. Think of any Jack or Jill in your organisation. Give them any role you want: Jack as overnight security guard and/or head of research, Jill as HRD and/or front desk receptionist. How much are they worth? Go on... put a price on their heads.

Managing it... I hear the trumpeting of dinosaurs in the background: "if you can't measure it, you can't manage it." That's actually not true. There are plenty of things we manage every day that we can't measure with a slide rule. Laurie Bassi's company has been measuring human capital management for years and linking it to share price.

Reporting on human capital. All may not be lost. It remains true that our two principal means of financial reporting – the balance sheet and the P&L – are no longer fit for purpose, given that we can't put our biggest asset on the balance sheet, and the P&L can only report (inadequately at that) on people as costs (strange word for an asset). Beyond that, standard accountancy practice can only report on historical past performance. It can't look forward. Some people don't like the term human capital because it sounds impersonal. Which is why we chose Human Potential Accounting as the name for our business.

Both the CIPD and BIS are championing the idea that financial reporting in context is a genuine option for shareholders and investors alike. Which allows us, to some extent, to project forward. The CIPD's own report: View from the City, published by Hendersons on the back of research by Henley Management College, lays out an HR practitioner view of the non-financial wrapping needed to make contextual sense of financial data. Something is stirring in the undergrowth, after all.

Can I go now?

Michael Reddy is owner of and director at Human Potential Accounting

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