April 6, 2017
As the Executive Director of the Center for Talent Reporting, a nonprofit dedicated to advancing standards and best practices for the measurement and reporting of human capital, I strongly support the petition by the Human Capital Management Coalition (HCM Coalition) for mandatory and structured disclosure of key human capital measures to allow all stakeholders to better understand and evaluate the present and future condition of a company and to better enable comparisons across companies and through time. We have been active in this space for the last six years providing guidance to our members, hosting workshops and conferences, and speaking to numerous groups, and I can attest to the need for standard reporting.
Just 40 years ago physical capital on the balance sheet could explain about 90% of a company’s valuation. Now it explains only about 10% which is a truly dramatic shift in a very short period of time. The remaining 90% is explained by human capital which appears only with a negative connotation in the income statement as part of overhead (training expenses for example) or in the balance sheet as a liability (accruals for payroll, vacation, etc.). This recommendation would serve as very important first step in providing much needed information on human capital to provide a much more accurate picture of a company’s condition and risk profile.
The recommended reporting would also lead to greater accountability for human capital expenditures by senior leadership and far better and more transparent alignment of key human capital initiatives with the company’s goals – two management practices not occurring today. Through time the recommended reporting would also provide the rich, historical data for analysts and academic researchers to better understand and more accurately predict the contribution of human capital investments to financial success.
People will undoubtedly complain that such reporting will be burdensome and require disclosure of confidential and perhaps unfavorable information, but the situation was the same when public companies were required to start reporting the types of measures we all now take for granted and are considered by all to be essential for financial analysis. I hope that you will move in the direction suggested by the petition so that in the future people will consider human capital measures the same way, and it will be hard to believe there was a time when such disclosures were not made.
Center for Talent Reporting
2043 Arroyo Ct
Windsor, CO 80550
Author of The Business of Learning (second edition).
Adjunct faculty member in the PhD programs for Human Capital Management at Bellevue University and the University of Southern Mississippi and in the executive education program for Chief Talent Officers at George Mason University
Previously Chief Economist for Caterpillar Inc. and President of Caterpillar University