Whither HR: people are our biggest liability...

Michael Reddy , 01 Jun 2012


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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Nigel Rogers 01 Jun 2012

Presumably some sub-editor has seen AAM and changed it to Aberdeen Asset Management instead of Association of Accounting Marketing.

Been there, done that....

Nicholas J Higgins CEO VaLUENTiS & Dean, ISHCM 01 Jun 2012

Hi Michael. Interesting comments. Usefully measuring human capital or human capital management (more importantly) isn't difficult with the right mindset and tools - after all we've been doing it with clients for a decade or more. What is silly is people trying to connect it with shareprice (cul-de-sac. It's a No-No and this is something we've also been saying for a decade (see various publications). The problem is that many do not fully understand what measurement actually is or entails. With regard to 'managing it' - slide rules are not needed but evaluation techniques (I'm not talking the training kind) and understanding of management context are as is management per se. As for reporting, we introduced human capital reporting standards back in 2006 (google 'GHCRS2006') and it was (part) adopted by a number of organisations (flexible openshare format)- but since it was outside the UK 'HR inner circle' PR machine it didn't get widely publicised (no surprise there!). I note that the US is just introducing them and playing catch up for what it's worth. People familiar with our published views and technical writings (all freely available) at VaLUENTiS can see how all three connect in a practical manner. Incidentally, for the past decade I've been quoted as saying that people are simultaneously assets, resources and liabilities because that's how management has to view it.......I still wait with 'bated breath'.

It is Aberdeen Asset Management

Peter Bradley 01 Jun 2012

The author confirms he was indeed referring to Aberdeen Asset Management. The HR Sub-Editor

And develop and accumulate

Jon Ingham, Strategic HCM 02 Jun 2012

Michael, you're doing yourself a diservice - I think some of the ideas you're creating around measurement and reporting are taking HCM forward too. However, I also disagree about your 3 things. Actually, and despite my company's brand name, I don't think you can 'management human capital' at all. You can't easily manage something which belongs to someone else ie your employees. You have to create the environment in which they'll want to share it with you. It's why I define human capital management as managing people in a way that creates more / new human capital - the outcomes that your people provide. So there are additional and more important things you can do with human capital too - you can develop and accumulate it.

No blue water between us, Jon!

Dr Michael Reddy 13 Jun 2012

Jon, there's no blue water between us in fact. I used "management" in this piece in the sense that an HR mag's readers would understand it. I could have confused everyone by talking about "leadership" and would have if I were writing for someone else. In that context I endorse everything you say.

In this issue: September 2015
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Shared value: Why the investment community is getting interested in human capital

Continuous improvement: Re-engineering HR at IMI

Out and proud: John Browne on inclusive workplaces

Retirement planning: Shake up your pensions strategy

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