Proponents of human capital valuation and investment have been following events in the USA with great interest, as the commercial power of the workforce within strategic delivery becomes increasing apparent to investors, policy makers and regulators. Energy & Utility Skills Chief Executive Nick Ellins advises that a Proposed House bill looks to require annual disclosure of human capital metrics, and however successful its progress in turbulent political times, the move stands to pile on the pressure for more transparent evidence of the links between company workforce strategies and corporate business goals.
In March 2019, Energy & Utility Skills reported that in the USA, the Securities and Exchange Commission (SEC) Investor Advisory Committee had issued an initial call for stateside companies to better explain their human capital metrics. This move offered valuable synergy with a rising trend of institutional investor demand being seen in the UK through the international Workforce Disclosure Initiative, where over 130 investors worth in excess of $15 trillion under management wanted to see a value placed on human capital and companies to show how they would invest to drive that declared value higher.
The UK utility sector had already been studying human capital carefully in some quarters, with a number providing company reporting through the ‘six capitals model’, companies like power specialists SSE in the vanguard of promoting new approaches to quantifying returns from investment in its people and Energy & Utility Skills bringing together utility HR Directors, investment specialists and human capital experts to debate building the sectors human capital to power the utilities of the future, and directly inform the impending sectoral 2020 – 2025 Workforce Renewal & Skills Strategy.
By February 2020, the initial SEC call for action in the USA had become the Workforce Investment Disclosure Act, which has now been provisionally passed by the House Financial Services Committee. It seeks to bring new levels of transparency and disclosure to key labour market matters, including workforce composition, diversity & inclusion, workforce stability, training and capabilities, health and safety, compensation and incentives and other areas.
This next step stateside also complemented the UK rise of – and commitment to – human capital within the approach of the Chancellor, as he delivered his first budget speech in March 2020 and laid out plans to conclude a review by the Office of National Statistics in the Autumn. The full Energy & Utility Skills assessment of the Chancellors budget aims and intentions can be found here.
Back in the USA, The Workforce Investment Disclosure Act called for availability of information to go beyond statistical reporting, testing out how well company goals are informed by coherent workforce planning and companies can prove it through more qualitative and nuanced information. A good summary of the requirements is published by Willis Towers Watson, a leading global advisory, broking and solutions company. They advise that the catagories include:
- Workforce demographics — the number of full-time, part-time and contingent workers with policies and practices relating to subcontracting, insourcing and outsourcing.
- Workforce stability — voluntary and involuntary turnover rates, internal hiring and internal promotion rates.
- Workforce composition — gender, racial and ethnic composition of the workforce and the policies and audits to support them.
- Workforce skills and capabilities — average number of hours of training and spending on training per employee per year, skills gaps and alignment of employee skills and capabilities with business strategy.
- Workforce culture and empowerment — work/life balance, workplace harassment, wellbeing, sense of purpose, trust in management etc.
- Workforce health and safety —frequency, severity and lost time due to injuries, illnesses or fatalities, disclosure of fines.
- Workforce compensation and incentives — incidents and policies
- Workforce recruiting and needs — new jobs created, quality of hire and new hire retention rate.
Back across the pond again to the UK, and many of the same features being requested through the new proposed USA act, were also being raised by investors as part of the Workforce Disclosure Initiative research and through heightening ESG (Environmental, Social, Governance) reporting. Investors had already seen clearly that much of the desired performance and outperformance that would lead to sustainable dividends, supportive customers and lowered corporate risk, came from human decisions and human innovation. Too much focus was being placed on financial capital, natural capital and technological innovation by companies and regulators, with too little equivalent scrutiny placed on the human assets that held the key, but could walk out of the door at any time.
It is no surprise that as scrutiny increasingly moves from cost of capital discussions and purely financial and natural assets to people, significant commercial gains are becoming apparent. Did major business leaders need to be told that investing in a committed, safe, skilled and sustainable workforce would deliver measurable business success and sustainability? Unfortunately it appears so. Did they need to be convinced that having a truly diverse and representative labour force, executive team and Board would deliver equivalent value in diversity of problem solving, innovation and customer satisfaction? Yes, despite the empirical evidence. At least for some, and at least for now.
The current bets are on the Workforce Investment Disclosure Act clearing the House floor and being successfully voted on, but the Senate deciding not to take action and progress it any further at this stage.
Is that the end of it? No, as on both sides of pond, the fast increasing pressure to require companies to set out how they value human capital, will grow that value, and then ensure that the resulting people strategies are closely aligned with the company goals and objectives is becoming constant. Human capital valuing and reporting is very much on the rise for any business seeking to practice excellence for its communities, shareholders and employees.
The UK utility sector is in a perfect position to work together, share evidence and best practice and take a lead.