Jun. 17, 2022
To whom it may concern, I write in support of petition 4-787 which recommends requiring publicity traded companies to disclose human capital related metrics as part of their annual reporting. I am a strategy professor and researcher with expertise in human capital related matters for companies. My support for this petition originates in the arguments of the late Dr. Clayton Christensen. Christensen looked to economic history and pointed out that for many years in human history food was one of the scarcest resources, so humans developed careful ways of tracking and measuring food. Then we moved into an industrial revolution where physical capital (property, plant and equipment) became the scarcest resource for continued economic growth, so we developed careful ways of tracking and measuring PP&E. Then we moved into a post WWII world where financial markets became increasingly important for economic growth and financial capital became the most constrained resource for continued expansion. Dr. Christensen referred to this time period as the rise of the "Church of Finance" when we developed a host of clear financial metrics and "best practices" for managing scarce financial capital. He referred to these as the "doctrines" of finance and did so purposefully to indicate that adherence to these best practices became almost a religious fervor. After carefully elucidating this history, however, Dr. Christensen would then point out that today there is more financial capital sitting on the sidelines than ever before in the history of the world, and he points out that finding capital is no longer the problem. The modern problem is what to do with the excess capital floating around - i.e. where are the compelling investment opportunities? One of his conclusions is that there is an abundance of financial capital but a scarcity of human capital. Modern problems are big and complex, and we lack the human capital and leadership potential to fully put to use all the financial capital available. One implication of his arguments is that if human capital is now the scarce resource that constrains economic growth, then we should be carefully measuring and tracking human capital in the same ways that we have developed metrics for physical and financial capital. I note that many companies are, in fact, tracking these metrics internally and the modern executive seems to feel very acutely the pain of scarce human capital. Companies have been continually ramping up their sophistication of human capital metrics and human capital management for at least the last decade. But, while we require companies to report detailed information on their physical capital, and detailed metrics for their financial capital, we do not currently require these same companies to disclose any detail on their human capital. If we want to understand a company's future potential, and evaluate the extent to which a company is a safe investment for the future, then we must be able to compare companies in an apples-to-apples way on their investments in human capital. We must be able to observe companies that are investing in the workforce of the future vs. companies that are minimizing human capital investment in order to extract greater financial payoffs in the short term. It is my professional opinion that requiring publicly traded companies to disclose metrics regarding their human capital investments and management is critical for ensuring that investors can fairly evaluate the extent to which companies are positioning themselves for profitable futures. Warmest regards, DK -- David (DK) Kryscynski Visiting Associate Professor University of Michigan Ross School of Business R4480 701 Tappan Street, Ann Arbor, MI 48109