The events of 2020—a pandemic, social unrest, economic crises, workforce disruptions—have intensified the need for boards and senior management to focus on their firms’ workforces. Boards face a daunting challenge, however: to focus on the human capital management (HCM) issues that are truly key for sustained success. Brave New World: Creating Long-term Value through Human Capital Management and Disclosure, a new report from The Conference Board, provides comprehensive guidance to executives and other practitioners as companies leverage HCM to drive long-term value.
This report’s insights and findings were generated through a series of meetings with more than 100 executives, as well as outside experts from private and public corporations.
New Securities and Exchange Commission (SEC) rules broaden the information companies are expected to disclose regarding human capital in their annual financial reports. Even though companies are moving quickly to meet these new disclosure requirements, the focus on HCM will unfold over time. Companies not only need a clear HCM strategy, but also enhanced governance practices and information to move from the workforce they have now to the one they need to achieve future business success.
Insights and recommendations from this report include:
Boards and management should devote sustained time and attention to HCM and be prepared for their strategy, practices, and disclosures to evolve over time.
- HCM is a complex topic that needs to be tailored to each company.
- Boards should evaluate their firm’s current human capital capabilities and future needs, considering the adoption of a human capital strategy that supports the company’s broader business strategy.
- Companies should customize their HCM disclosures to reflect their business and human capital strategies, with reporting frameworks and regulations as a starting point for their discussion.
- It will be important for companies to have a robust process for updating their disclosures as their understanding of HCM evolves, board practices mature, and industry practices and investor expectations change over time.
Boards have an increasingly important role to play in human capital management and disclosure.
- Boards can shape the workforce in multiple ways: hiring, firing, promoting, and compensating executives; approving key human resources and compliance policies; and exercising their oversight powers.
- Each company will not only need to clarify and codify the roles of its board and its committees with respect to HCM, but also ensure that boards exercise their multiple powers in a coordinated manner.
- Boards should have an in-depth, candid understanding of the corporate culture and its role in the overall HCM strategy.
- To provide context and accountability, companies should use both quantitative and qualitative measures for evaluating HCM performance.
- Companies should ensure boards have, or have access to, HCM expertise.
“Workforce issues have often been an episodic priority for boards—particularly after mergers, scandals such as #MeToo, or during the current pandemic,” said Paul Washington, Executive Director of The Conference Board ESG Center. “The workforce now needs to be a sustained strategic priority for corporate directors. That requires taking a fresh look at the board’s governance practices, the information it receives, the disclosures the company makes, and how the board can leverage its multiple powers to help drive the company’s workforce strategy.”
Companies should disclose HCM-related information in various locations and formats to serve wider and more diverse sets of constituents.
- While companies are moving quickly to increase their HCM disclosures in their Annual Reports on Form 10-K, the new SEC rules are not the only compelling driver.
- Intangible assets such as workforce capabilities are an increasingly large part of a company’s market value, and research establishes a clear connection between strong HCM practices—and good HCM disclosure—with shareholder value.
- HCM matters to many other constituents, including investors who see HCM issues as essential to sustainable long-term value creation, as well as employees, consumers, and the public.
“Now, the workforce is not only recognized as a valuable intangible asset for companies but regarded as a critical stakeholder; enhancing the welfare of the workforce is part of the purpose of the corporation,” said Rebecca Ray, Ph.D., Executive Vice President, Human Capital at The Conference Board. “Given this—and the clear relationship between HCM and corporate performance—it stands to reason that HCM should be front and center for boards and management and viewed as a fundamental driver of economic value for organizations.”
Media can contact The Conference Board for a copy of the new report.
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