Human capital management is key to sustained company success
The Covid-19 pandemic, economic turmoil, social unrest, and disruption caused by remote working. All these factors weighed heavy in 2020 and continue to impact the welfare of employees, causing boards and senior management to focus more on their workforces.
A new report from US think tank The Conference Board titled Brave New World: Creating Long-term Value through Human Capital Management and Disclosure explores how HCM is key to sustained success.
This report's insights and findings were generated through a series of meetings with more than 100 executives, as well as outside experts from private and public corporations.
New Securities and Exchange Commission (SEC) rules broaden the information companies are expected to disclose regarding human capital in their annual financial reports.
The report says companies are moving to meet these new requirements and the focus on HCM will unfold over time. Companies not only need a clear HCM strategy, but also enhanced governance practices and information to move from the workforce they have now to the one they need to achieve for future success.
Selected insights from The Conference Board report include...
Devote sustained time and attention to HCM and be prepared for strategy, practices, and disclosures to evolve over time
HCM is a complex topic that needs to be tailored to each company. Boards should evaluate their firm's current human capital capabilities and future needs, considering the adoption of a human capital strategy that supports the company's broader business strategy.
Companies should customize their HCM disclosures to reflect their business and human capital strategies, with reporting frameworks and regulations as a starting point for their discussion.
It will be important for companies to have a robust process for updating their disclosures as their understanding of HCM evolves, board practices mature, and industry practices and investor expectations change over time.
Boards have an increasingly important role to play in HCM
Boards can shape the workforce by hiring, firing, promoting, and compensating executives.
Each company will not only need to clarify and codify the roles of its board and its committees with respect to HCM, but also ensure that boards exercise their powers in a coordinated manner. Boards should have an in-depth understanding of the corporate culture and its role in the overall HCM strategy.
"Workforce issues have often been an episodic priority for boards – particularly after mergers, scandals such as #MeToo, or during the current pandemic," said Paul Washington, Executive Director of The Conference Board ESG Center.
"The workforce now needs to be a sustained strategic priority for corporate directors. That requires taking a fresh look at the board's governance practices, the information it receives, the disclosures the company makes, and how the board can leverage its multiple powers to help drive the company's workforce strategy."
HCM matters to many other constituents, including investors who see HCM issues as essential to sustainable long-term value creation, as well as employees, consumers, and the public.
"Now, the workforce is not only recognized as a valuable intangible asset for companies but regarded as a critical stakeholder; enhancing the welfare of the workforce is part of the purpose of the corporation," added Rebecca Ray, Executive Vice President , Human Capital at The Conference Board.
"Given this – and the clear relationship between HCM and corporate performance – it stands to reason that HCM should be front and center for boards and management and viewed as a fundamental driver of economic value for organizations."