Strength and resilience: Why human capital management matters
At the heart of human capital management (HCM) is how a company motivates and invests in its workforce. HCM recognises that human capital is a critical asset in driving long-term value and that there’s a clear correlation between HCM and return on assets. In fact, Just Capital found that when companies pay their workers a living wage, they have higher returns in the long termi. Moreover, during the Nasdaq Governance Solutions Board Engagement team’s recent discussions with CEOs and board members, talent attraction, development, and retention have been articulated as both a top priority and key risk to manage.
To assess issuers on both financial and social (the ‘S’ in ESG) measures, investors are expecting that companies disclose HCM strategies and metrics. According to research by IR Magazine, more than three-quarters of investor relations teams have received questions about diversity, pay, and compensation, among other HCM issuesii.
According to research from eVestment, a wholly owned subsidiary of Nasdaq, ESG integrated capital has grown 39% over the past two years to $11.1 trillion globallyiii. HCM has shifted from an internal exercise to attract and retain talent, to a factor viewed by investors as a future prediction of success and, more recently, as a means for both investors and companies to gauge preparedness to respond and act during a crisis.
While interest in HCM certainly isn’t new, events in 2020 and 2021 have had a profound impact on corporate governance and responsibility. For instance, the pandemic shined a spotlight on employee health and safety and less responsive companies have been called out for not protecting their employees. Employees at several large companies conducted walkouts, strikes, and sickouts to demand safety precautions and hazard pay.
Meanwhile, the social justice movement centered around George Floyd highlighted the need for human sensitivity and a far deeper sense of understanding among communities. Diversity, equity, and inclusion (DEI) within organisations is not new, but more and more leaders see the importance of all three working together.
“I cannot recall a time where it has been more important for companies to respond to the needs of their stakeholders. We are at a moment of tremendous economic pain. We are also at a historic crossroads on the path to racial justice – one that cannot be solved without leadership from companies,” noted Larry Fink, Chairman and CEO of BlackRock, Inc., in his 2021 letter to CEOsiv.
Changing company values
A few decades ago, the hot boardroom topics were profit and loss and balance sheet centric, but there’s been a shift to looking at how HCM fuels long-term business value. Boards are also more aware of other ESG issues, such as climate impact, water scarcity, pollution, deforestation, biodiversity, and others.
Companies have historically organised their values around customer expectations. But today, with a more diverse, younger workforce, customer base, investors, and other stakeholders, that expectations are evolving, and businesses need to evolve with it. As the economy reopens, many CEOs see this as an opportune time to reevaluate their business vision, mission, and purpose; how they will spearhead an equitable and inclusive pandemic recovery; and the legacy they want to leave with the world.
To find out eight examples of how company values are shifting as well as how HCM is changing what companies disclose and discuss with investors, download the full whitepaper from Nasdaq here.
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