When it comes to assessing a company’s future performance, should human capital be seen as a risk factor or a value factor? “The so-called ESG (environmental, social, governance) stuff is often put in the risk area,” says the International Integrated Reporting Council’s Neil Stevenson. “Having it as a risk factor does encourage engagement, which is to be welcomed, but it does feel rather pessimistic.”
But now he believes there is an opportunity for a new era of corporate reporting, one that takes intangibles into account, to change that. “This sort of reporting can highlight the value opportunity and move [HCM] from risk to value creation. It offers good return for investors – no one is saying this is about less ROI.”
Stuart Woollard, managing partner at Organisational Maturity Services, agrees that since the global financial crisis, “most actions in the HCM space [have been] risk-related”, but that the time is right to move from risk-mitigating to value-adding.
“Now we can more easily put forward a value-based argument, which fits in with the much broader questions being raised by many about the nature of the capitalist system,” he says. “Our big idea has been linking human capital to sustained value.”
So while the risk factors associated with HCM areas such as poor succession planning for key roles, a lack of critical skills, and unethical behaviour, have been useful for getting HR issues on the wider business agenda, perhaps the time has now come to focus on where good HR strategy can add value to future organisational success.
