Increasing expectations about human capital management (HCM) from regulators, investors, consumers, and employees—as well as fundamental changes in business strategy and the way people work—are causing boards and C-suites to focus more on their HCM strategy and story.
A new report from The Conference Board recommends businesses meet these growing demands by creating a compelling HCM strategy and narrative supported by data-driven, evidence-based analytics.
While sharing that story with stakeholders brings potential risk, it also brings potential rewards. Where organizations meet increasing demand for transparency from various stakeholders, they often experience higher employee retention and engagement, greater customer loyalty, and more investor interest. They will not only be better prepared for external and internal attention to human capital matters but will be more capable of taking needed action.
The report, created in partnership with Seyfarth Shaw, Edelman, and HCMoneyball, explores the current and evolving regulatory environment as it relates to HCM, offers guidance on the development of an HCM strategy and narrative, and looks at how to communicate and tailor that narrative to a variety of stakeholders. The insights are based on four working group sessions held in 2022 with approximately 200 corporate leaders—including C-suite executives and board directors, as well as outside experts.
Key findings and recommendations include:
Prepare for the external and internal forces that are likely to drive increased attention to human capital matters from the board and C-suite.
- There is increasing stakeholder (e.g., investor, consumer, and employee) interest in organizations’ human capital strategies, practices, and progress toward employee well-being.
- More prescriptive SEC disclosure rules on human capital management are expected, as well as increased regulation by other agencies and litigation relating to oversight of a firm’s workforce.
- Major institutional investors are looking for greater board engagement in human capital and seeking more data to establish and refine their investment and voting policies.
- Transparent organizations may find it easier to attract and retain talent—a significant aspect of a successful business model.
Develop a compelling human capital strategy and narrative that goes beyond mandated reporting requirements to connect HCM strategy to business and financial outcomes.
- Organizations should identify, track, and analyze data on a range of key HCM measures relevant to the firm’s business, and then determine how to turn that qualitative and quantitative data into a compelling HCM strategy and story for key stakeholders.
- With advanced human capital analytics (HCA) capabilities, firms can create an evidence-based and compelling HCM strategy and story.
- An effective human capital strategy should, at a minimum, address the firm’s talent, organization, structure, and culture necessary to carry out business strategy and achieve operational, financial, and relevant ESG goals.
- HCM strategy should be an integral part of the firm’s business strategy.
- The CHRO will naturally take the lead in building the HCM strategy and story by involving each member of the executive management team, the board, and employees; the result should be a single source of truth about human capital strategy, initiatives, performance, and impact.
- The HCM strategy and narrative will change over time as mandatory reporting rules evolve, stakeholders request more detail, and firms experience the benefits of rigorous HCA.
Quantify the impact of human capital performance to demonstrate how the firm’s HCM is driving financial performance and effectively and efficiently deploying the organization’s workforce.
- To emphasize human capital performance, enable effective decision-making, optimize human capital investments, and demonstrate to stakeholders the increasing value of human capital, organizations should integrate productivity, talent acquisition, learning, attrition, and diversity, equity & inclusion (DEI) data into HCM strategy and certain narratives.
- HCM strategy should clearly connect to enterprise-level outcomes and financial impact through inclusion of human capital return on investment (HCROI) and human capital value added (HCVA) reports.
“It’s nice to say we’ve got a human capital management strategy that aligns with our business strategy, but we’ve got to make it specific, concrete, and compelling,” said Paul Washington, Executive Director, The Conference Board ESG Center. “A strategy leveraged on analytics can demonstrate the returns on each dollar invested in talent acquisition, learning, mobility, remuneration, and engagement.”
Expect greater scrutiny of human capital strategy, its execution, and its linkage to business impact.
- The board should generally be responsible for approving an HCM strategy or, at a minimum, bring the same level of active oversight to the employee side of the business that it does to the customer side.
- The process of building an HCM strategy and narrative includes socializing the plan among the C-suite and board; gaining buy-in; collecting, analyzing, and benchmarking data; and then co-creating and audience-testing the story.
- Consider forming a committee to identify, collect, and verify the necessary data. There is a need for high volumes of quality data, followed by competent analysis to get valuable insights.
Communicating HCM information beyond mandated disclosure involves risk. Leaders should calculate the risk/reward ratio carefully.
- HCM information that is important for managing the business could carry considerable risks if disclosed publicly, such as regulatory fines and monetary losses tied to HCM, as well as information that could be competitively sensitive (including detailed data on productivity, turnover, and employee training.)
- Publicly disclosed HCM information should align with the lived experience of employees who will be quick to use social media platforms to point out discrepancies which may result in reputational risk.
- Ensure that information disclosed publicly aligns with words, actions, and decisions. Discrepancies between what a company reports (or commits to) and what it does often attract the attention of the media, the public, and/or other stakeholders.
- Senior executives and the board should provide oversight, determining what information is communicated internally versus externally while protecting sensitive information and bolstering the corporate brand and reputation.
Frame the narrative for each stakeholder with an emphasis on building trust.
- The HCM story is more compelling when framed and tailored to key audiences, including the board, investors, regulators, employees, customers, business partners, and the community.
- The HCM story should survive scrutiny by all stakeholders, maintaining and building trust across all HCM communications.
- Telling the HCM narrative falls mainly to the CEO, who is the person stakeholders increasingly expect to speak out on social, political, environmental, and human capital issues.
- Build subnarratives that speak to the concerns, benefits, and opportunities of the stakeholder group it is targeted to in order to build and convey purpose, establish trust, and drive engagement.
“Both workers and candidates want to know how effective a firm’s policies and programs are on issues such as workplace culture, pay equity, business ethics, and the like,” said Rebecca Ray, Executive Vice President for Human Capital, The Conference Board. “By developing and communicating a compelling narrative around these issues, you send a powerful signal to employees that these issues matter to the business. Speaking to the concerns, benefits, and opportunities of your HCM strategy conveys purpose, establishes trust, and drives engagement and retention.”
About The Conference Board
The Conference Board is the member-driven think tank that delivers trusted insights for what’s ahead. Founded in 1916, we are a non-partisan, not-for-profit entity holding 501 (c) (3) tax-exempt status in the United States. www.conference-board.org