With the SEC’s proposed rules on human capital management looming, The Conference Board has formed working groups to inform a new piece called “Telling the HCM Story,” which makes the case for boards to prioritize the development of an HCM strategy and a narrative that effectively communicates each company’s unique story.
The notion that people are a critical asset (including in the accounting sense of the term) has led investors, regulators and others to articulate their desire to understand how the effectiveness of talent translates to competitive business advantage. Despite the fact that no standardized metrics exist across companies to measure human capital, more and more companies are feeling compelled to “build their ’human capital narrative,’ according to executives who participated in the study.
The report acknowledges that disclosing greater information comes with risks - legal, reputational and competitive – but suggests that management should carefully consider the risk/reward ratio in determining what to disclose and to whom. The Conference Board believes that disclosing human capital information can contribute to a successful business model and be used to build multi-stakeholder trust in the form of increased investor confidence, customer loyalty, engaged employees, and strong brand reputation.
The report outlines the following suggestions based on collective experiences from the working group members, which included executives, directors and HCM experts.
- Elements of the HCM strategy. Elements to consider when developing an HCM strategy are listed on page 12 and include talent acquisition strategy for critical roles, differentiated retention initiatives for certain employee groups and top performers, DE&I efforts and organizational culture.
Bank of America highlights human capital strategy in the context of corporate objectives in their annual report. Phillips 66’s inaugural HCM report from 2021 is cited for linking human capital goals to specific achievements such as retention of 96% of their higher performers and employee innovation generating over $4 million in value (see their 2022 report.)
- Turning strategy into your narrative. Data collection and analysis are often the most labor-intensive part of the strategy. A best practice was to establish a committee to determine what data should be collected, analyzed / benchmarked for insights and validated for quality. Leaders will need to socialize the messaging with the C-suite and board and “test” the story with multiple stakeholders including employees.
- Communicating the HCM narrative. The decision regarding how much HCM strategy and data should be communicated externally is a sensitive one. The CEO and C-suite play an integral role in ensuring internal and external messages are aligned. In addition to data reporting, discussing how the company is progressing towards goals and how these link to the broader business strategy and outcomes is critical. Subnarratives can help target the story to specific stakeholder audiences, tailoring messaging to their specific concerns and interest.
Published on: May 12, 2023
Authors: Megan Wolf
Topics: ESG and Diversity & Inclusion, Executive Pay Plan Design, People and Culture
Director, Practice, HR Policy Association and Center On Executive Compensation