A question of value: why the investor perspective matters.

Investors might not seem like the natural stakeholders for HR departments, but with more and more interest coming from pockets of the investment community there are now very real opportunities for HR leaders in listed organisations to influence the stakeholders who fund our organisations. As people analytics and data driven insights become feature more as a part of management decision making, the HR team could potentially start to be integral in conversations traditionally left to other business functions.

For some time we've been investigating the role of HR in using data to drive decision making inside our organisations. We have looked at some length at the role of HR analytics (and the many guises it comes in), the relationship between HR professionals and workforce data, and how HR teams can apply standard sets of measures to make better sense of their people data. More recently we have broadened out to consider if and how workforce insights are shared to external stakeholders via annual reports; and it is this angle which we are further building on by looking at the investor perspective. In my view investors are potentially one of the most influential audiences of workforce data who, if they have sight of workforce data, could use it to help businesses to make far more effective decisions. We’ve been looking at this more closely, and have last week produced our new report investigating workforce decision making: The intangible workforce: do investors see the potential of people data?

Our new research investigates published literature which describes if and how investors use different types of data to make decisions, and has focused on where human capital information factors into the mix. We wanted to understand more about what makes investors use investor people data, and the kind of information that they’re interested in exploring. These insights will help HR to inform better reporting, and I believe could ultimately help to drive boards to make more effective decisions with the workforce in mind.

We found that investors are subject to a number of biases that could be influencing them away from workforce data. For example, herding bias means investors may make decisions in line with the crowd without always seeking evidence, e.g.  Particularly large well-respected investment houses (or specific known fund-managers) setting the status quo, whilst other smaller investors follow. This could impact on the use of people data – e.g.  if mainstream fund managers or analysts don’t seek people data already (or don’t see the value of it in decision making) it is unlikely that other investors will start to incorporate it into their decision making. There is hope however that Environmental, Social and Governance (ESG) investors who appear to be more attuned to workforce data may start to promote the use of human capital information as an aid to better decision making.

As well as biases in the decision making processes, there is also a lack of understanding about exactly how the decision making process works. For example Individual analysts and fund managers may have an inclination towards financial information, or they may see sustainability information (e.g. carbon accounting) as a key indicator. Investors differ in how they assess and use information about the business, its performance and its future prospects. Therefore, understanding and standardising how investors appreciate the human element may be particularly difficult.

There are however ways that we think HR can help to improve corporate governance and human capital reporting in particular:

  1. Build high quality data measurement and reporting systems: HR needs to invest in HR data services that include reporting of clear and transparency narratives about the workforce. Transparent data is crucial to helping investors to use people data in their decision making.
  2. Frame HR strategy and human capital investment in terms of long-term business strategy: for the workforce to be seen as an investment and not a cost HR must re-frame the debate about the role of people in creating value. The HR strategy and the measures that describe human capital investment are some of the ways that HR can help influence investors towards more long-term thinking.
  3. Disclose material risk and opportunity: people and their human capital (their knowledge, skills and abilities) have value and therefore must be considered a valuable element of the business model. Framing human capital data in terms of risk and opportunity would help to engage investors and other external stakeholders in debates about the importance of good people management and workforce investment.
  4. Report standardised measures to boards and externally: standardising certain measures of value to the investment community may help to engage investors with data which is comparable and measurable over time (e.g. developing trends). Operationalising standards of reporting can also help to promote more effective data management by HR functions.

The opportunity to work more closely together is one which could generate real benefits for both the HR profession, the investment community, and the senior stakeholders they’re influencing. If there were ever a topic to prove that HR has value to add at the top table the question of “the value of the workforce” is it.  

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