HR to prove intangible value

by 06 Feb 2007

HR PROFESSIONALS must seize control of human capital reporting if they are to prove the return on their organisation’s intangibles, a study of human capital reporting in the US found.

However, most companies do a poor job of explaining their data when it comes to their annual reports, according to David Creelman, CEO of Creelman Research who conducted the report.

“Most of the Fortune 100 don’t seem to have a clear idea of why they are reporting what they are reporting – they are just reacting to various interest groups or ideas that have floated up. This means there is a great opportunity to improve reporting on human capital without doing a lot of new data collection,” he said.

Reporting on Human Capital: What the Fortune 100 tells Wall Street About Human Capital Management examined those companies that provided the most useful reports on human capital, which included GE, IBM, Intel, UPS and Wells Fargo.

Creelman claimed that if HR did not take the initiative to ensure effective and detailed reporting on intangibles then CFOs and investor relations would be forced to take control of human capital reporting.

With intangibles representing up to 50 per cent of a firm’s market value, the report said it was important for organisations to effectively characterise, capture and improve intangible value.

“Companies are reporting a good deal of information on human capital, albeit in a haphazard way. However, the point is that companies should start approaching this in a disciplined way,”Creelman said.

“CFOs in particular should know that regulators around the world have made it quite clear they should do more reporting on non-financial information,” said Creelman.

Demonstration of a talent mindset, a strategic view of human capital management, proven evidence of robust HR practices and positive employee survey outcomes were just some of the factors highlighted in successful reports.

Explanations of employer brand and recruitment processes were praised and also considered best practice when it came to reporting on recruiting. “It’s about explaining how a certain strategy demands certain human capital outcomes and what HR practices lead to those outcomes,” the report said. “They go on to provide evidence that these practices, are leading to the desired outcomes.”

Further to this, the report highlights that dollars invested per employee is the single best metric to report on while those on leadership, including information on leadership development and succession planning practices were ranked highly.

“HR has to go into this from the perspective of a director who is out to protect investor interests,” said Creelman. “The worst mistake HR can make is to look at human capital reporting as a way to get approval for their favourite programs.”

HR must learn to think like their board and investors if they are to gain their interest and obtain the budget they need, Creelman suggested. “The way to do this is to talk to board members and to people who regularly work with board members. They should read the sorts of things board members read. It is a real shift in mindset but that’s where HR has to get to,” he said.

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