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SSE HRD: We need a better dialogue between investors and HR

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What do investors value when it comes to human capital reporting?

Investors need to engage more with people issues in the businesses they have shares in, according to SSE HR director John Stewart.

Speaking at an event at The Investment Association on human capital reporting, Stewart said that although SSE had published a report that attempted to quantify the value of its human capital he had seen limited interest from investors in this area.

“After we did the report I went to the investor relations department to ask what questions we had been getting from the investment community over the past 12 months,” he said. “Of the 2,500 questions 24% were about group strategy and 15% were about political and regulatory risk. Less than 1% were people-related – and that 1% were mainly about management pay.”

Stewart, who said as an HRD he was “only pulled into investor conversations on management pay”, called for a “better dialogue” between investors and organisations when it comes to thinking about human capital.

“It is the extent of the ability, talent, knowledge and skills of people that ultimately determines their capacity to deliver returns for shareholders,” he added. “You can’t deliver the strategy without the people.”

Jeanette Livijn, senior VP HR and OD at manufacturer Atlas Copco, echoed Stewart’s calls for improved dialogue. “As a global organisation we need to have an ecosystem of HR policies and principles,” she said. “It’s difficult to put that into a matrix. It’s about a dialogue, asking the right questions, and gathering qualitative information.”

Jupiter CFO Philip Johnson warned against mandatory reporting of human capital data, saying it risks reducing people information to a “tick-box exercise”. “Valuing [people] from an accounting perspective is wrong,” he said. “It’s about telling the story in the strategic report.”

However, Baroness Denise Kingsmill, who authored the 2003 Accounting for People report, said she believes there needs to be formal requirements to report on people data. “Unless you have to report it, you won’t do it,” she said. “You need to have a clear mandate that this has to happen.”

Kingsmill also said she was “disappointed” with the HR function for not “rising to the challenge” of providing information that clearly links people with value creation and organisational performance.

“You have to be able to link the performance of a company [to its people],” she said. “Companies are not under pressure [from investors] to do anything in relation to human capital.”

Investors at the event mentioned data such as turnover and employee engagement scores as potentially useful in helping them value companies, but Organizational Maturity Services managing partner Stuart Woollard warned “looking at human capital management is complex”.

“Employee engagement is a small part of a bigger whole,” he said. “We need to consider the whole system in terms of how we analyse organisations and in terms of how companies manage themselves. The investor community could be a huge catalyst for change.”