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Investors beware: Investment outcomes – such as return on equity, return on investment and profit margins – are much bigger with most companies that have solid human resources and training policies.
Yes, corporations usually achieve strong financial performance if they demonstrate a healthy regard for employees in training and HR best practices, according to research funded by a noted nonprofit research organization.
The Investor Responsibility Research Center Institute told investors to invest in companies that use best practices in human resources training. IRRCi funds academic and practitioner research that enables investors, policymakers and other stakeholders.
Corporations should also heed this study.
It analyzed data from 92 studies in 2015.
“Decades of research offer powerful evidence that human capital factors can be material to financial performance,” says study co-author Aaron Bernstein, Ph.D.
“This should give companies the incentive and confidence to provide information to investors about their HR policies and practices,” he adds.
The report says investors should consider asking companies for the following information with respect to HR and training:
— A description of the company’s training policy.
— How a firm’s overall HR policy relates to its business strategy.
— The kinds of employees trained and whether training is provided in or outside the company.
— Whether and how the company measures the direct and indirect costs of the training.
— Outcomes that characterize successful implementation of policies and how they are measured. These might be immediate in terms of increased worker knowledge and skills resulting in improved productivity or customer satisfaction. Or, they might result in lower turnover with associated cost savings.
— Measures of the impact that implementation has had on company profits and other measures of financial performance.
“Materiality of Human Capital to Corporate Financial Performance” is authored by Drs. Bernstein and Larry Beeferman, both with the Pensions and Capital Stewardship Project at Harvard Law School’s Labor and Worklife Program.
“Decades of research offer powerful evidence that human capital factors can be material to financial performance.”
Challenges
Investors face significant challenges in attempting to incorporate human capital metrics into investment analyses.
For example, there are no standard metrics or definitions and there is no clear consensus about which HR policies in what combinations have the most impact on financial outcomes.
“For this information to become actionable for investors, there needs to be a level of disclosure and standardization that does not exist,” says Jon Lukomnik, IRRCi executive director.
“To date, there hasn’t been an outcry from research providers or investors pressing companies to report publicly on their human capital policies and outcomes. Perhaps this will change now that we can clearly see significant relationships to financial performance,” he adds.
Out of the 92 studies, 67 reported positive financial results. Twenty-four showed mixed or no financial effects. Only two reported negative results.
From the Coach’s Corner, here are links to articles to enhance HR practices:
HR Trends in Talent Management Using Technology — Despite all the talk about the use of technology in talent management, the majority of human resources departments are behind the curve. Why? A study shows 72 percent of HR departments reveal they’re not using such tools.
Manage Health Costs by Improving Your Culture 3 Ways — Is your company saddled with high health costs? By improving your culture in three ways to minimize stress, your company will improve performance and long-term sustainability.
Optimize Talent Management with 5 Coaching-Culture Tips — When managers become coaches, you get a higher-performing workforce. You will have replaced mediocrity with strong performance. Here’s how to develop a coaching culture.
Best Practices to Evaluate Your HR Performance — To reach profit goals, leading organizations assess the performance of their human resources programs. If you want to accurately analyze the performance of your HR, at the very least you must research two areas.
With Employees’ Help, 3 Strategies to Succeed with Your Strategic Plan — Have you developed your strategy? It’s important to proceed without engaging in self doubt. But you’re concerned about involving your employees? There are three closely related basics in working with your employees to get the job done.
“An ounce of performance is worth pounds of promises.”
-Mae West
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