Investor Perspectives on Human-Capital Management

• Published in: Employment Relations Today Vol. 42; no. 3; pp. 1 - 7
• Main Authors: Bernstein, Aaron, Beeferman, Larry
• Format: Journal Article Trade Publication Article
• Language: English
• Published: Hoboken, USA Wiley Periodicals, Inc 01.10.2015; Wiley Periodicals Inc
• Subjects: Human capital; Human resource accounting; Initiatives; Institutional investments; Materiality; Stakeholders; Studies; United States > US
• ISSN: 0745-7790; 1520-6459
• DOI: 10.1002/ert.21519

Human resource professionals should be aware of the growing scrutiny they face from institutional investors. Corporate executives and management consultants have acknowledged for decades the importance of HR policies, or human-capital management. Indeed, the refrain - People are our most important asset has been repeated so often it has become a cliché. But investors have only recently begun to turn their attention to the issue. A key factor has been the emergence of organizations and initiatives aimed at helping the investment community recognize the impact of so-called nonfinancial considerations on corporate financial performance, including HR policies. Among these are the United Nations (UN)-sponsored Principles for Responsible Investment initiative, the UN Global Compact, the Global Reporting Initiative, and the Sustainable Accounting Standards Board. The organizations that have been involved in these international initiatives have been advising institutional investors that HR policies need to be seen as material to investment outcomes. In this context, the word material has both practical and legal meanings. It indicates that something should be considered a standard investment risk as defined by the US Securities and Exchange Commission's (SEC) corporate reporting requirements. Backing up such advice on HR disclosure is a rich literature of academic and practitioner studies that has examined the operational and financial benefits to companies adopting various HR policies. In a recent paper titled The Materiality of Human Capital to Corporate Financial Performance, we sorted through hundreds of these studies to identify those that focused specifically on conventional investment metrics conforming to SEC standards of materiality, such as profitability, return on investment, and returns to shareholders. In total, we identified 92 papers linking financial outcomes to HR policies such as training, compensation, and job design.