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Four 'Forces for Good' We Can Leverage to Inform Human Capital Value

The argument for human capital valuation: If people are a company's most important asset, why do they continue to appear as an expense on the income statement? | Image credit: HIP Investor

"Too much of what led up to the crisis in the old bubble days — the conspicuous consumption, the latter-day Gatsbyism — was fueled by a need to fill a huge emotional and psychological void left by the absence of meaningful work. When people cease to find meaning in work, when work is boring, alienating, and dehumanizing, the only option becomes the urge to consume — to buy happiness off the shelf, a phenomenon we now know cannot suffice in the long term.”
— Richard Florida, The Great Reset: How the Post-Crash Economy Will Change the Way We Live and Work

We continue to emerge from a financial crisis that for many of us caused catastrophic and lingering financial strain. Pre-crisis, key forces for ‘meaningful work’ that, as Florida noted, were missing or overshadowed are now representing a new long-term shift in how business is done — a shift in what it means to work and to employ those that do the work, to the giving and the receiving of creating products and services, and the reasoning or purpose for doing so in the first place.

From our ongoing research on how humans create value, we see four relevant key forces in the opportunity we have as business leaders to realize this value. Each force influences decision-making associated with long-term thinking:

  • Force #1: Millennials. Within two years, the millennial generation will comprise over 1/3 of the U.S. workforce and within seven years they will make up nearly 1/2. Nine out of 10 Millennials believe that it is their responsibility to make a difference. These future leaders intentionally seek meaningful work in which they lead change.
  • Force #2: Sustainability and Social Enterprise. This is a force of ‘business for good,’ as well as profit. Business that not only does ‘less harm,’ but intentionally creates positive impact for the community. Sustainable Brands, the Social Enterprise Alliance, B Corp and Conscious Capitalism are examples that represent this ”social enterprise revolution,” as Robert Esposito puts it.
  • Force #3: New Human-Centric Business Models. Entrepreneurs are designing their companies differently and their companies are growing as a result. Many are Millennials. They center the needs of early hires and partners into their vision, which in turn drives their strategy. NextJump has a ‘no fire policy,’ assuming lifetime employment. Infusionsoft’s Dream Manager is paid to encourage employees to identify and build their dreams, in turn developing passionate contributors who create company success.
  • Force #4: Impact Investing and Shareholder Value. Investors are taking significant social-based intention about where to invest. Selecting an ‘impact’ return directly affirms organizations that ‘do good’. What is its value to the shareholder? A key role of the organization is upholding the creators of value.

Humans as Assets

While we were studying the Millennials, new business models and sustainability during our work in 2013, we were less aware of impact investing as a force for change. Nor had we heard the compelling message by Paul Herman and Erin Meezan at the 2012 New Metrics conference about making human capital more tangibly realized on company financials.



Lead the Difference's
Steph Sharma,
speaker at
New Metrics '14

Additionally, we were researching the drivers of engagement and the notion that companies may be focusing on the wrong things — outputs vs. inputs. Gallup’s global engagement index reported yet another abysmal status of our commitment to our companies — 87 percent of employees globally are disengaged with their workplace. It is not the numbers we question, but that we must be missing something in how we work and how we connect. A ‘gold standard’ of engagement surveys is merely an indication of what has become — not necessarily why it is so. Through this, we became deeply curious about the minimal time and attention given to human capital issues and opportunities in sustainability concerns.

In continuing to understand these issues, we found a 2012 Sustainable Brands article by Herman that further engaged our focus on our current research. He states:

“A reporting system that fails to provide information on the core aspect – more than 80 percent of the stock price value — of a company’s ability to create value is missing the mark. Teams of people work with networks of suppliers (like Wal-Mart) that make goods and provide services, yet all of this value is under-accounted for because people are an ‘invisible’ asset — and one not quantified at that.”

By referring to people as an asset, we use the following definition: a useful or valuable thing, person or quality. This definition allows us to communicate with consistency amidst the financial meaning organizations have used to determine worth, while we also use our work to create new references.

Research Imperative

Who else has written about this? Why? What are the actual models that exist? What are the reporting concerns? How might human capital valuation change our behaviors as leaders for the better or the worse? Should metrics drive human-centric practices or do human-centric practices inform metric creation and use?

Through our research and collaboration with other leaders, we hope to shed additional light on how organizations can quantify the value of their human capital, their people. We hope we can all leverage the forces of good in the business environment today to inform, experiment and learn about the best ways to represent humans as a value in organizations, whether that is on the balance sheet, within various metrics, through a strong vision and culture or some combination.

Leadership Imperative

If today, 80 percent of an organization’s value is attributable to ‘invisible’ or intangible assets of which employees comprise a significant portion, how can other organizations more intentionally realize this value?

Interface accepted this challenge to value people as assets and Lindsay Stoda presented their progress at the 2013 New Metrics conference. Their leadership in this endeavor serves as validation and learning for other organizations. The time is now for leadership across organizations to go beyond curious, to continue to challenge the current inputs and outputs that serves to inform our business decision-making. Leadership needs information, proven (or at least well-researched) methods, collaborators and the permission to learn from experimentation in order for us to truly understand the potential of being more intentional about our most important assets.

As Herman’s initial article confirms, human capital valuation or human asset accounting are not new endeavors. What is new is the timing and unique business environment forces that business and society can choose to experience today to reshape our leadership in the long-term future.

Note: Our research does not endeavor to repeat the historic work of the past (though we dearly acknowledge the visionary courage and clarity.) We do seek to aggregate potential models, indicate potential continuums by which companies can begin to experiment and to confirm that the intent is responsibly human-centric. We plan to share additional key insights as part of the New Metrics 2014 in Boston next week. As well we hope to create a coalition for further work and applications.

 


Steph Sharma is Managing Director of Lead The Difference, a research and
strategy consulting organization focused on supporting leadership in creating
a long-term view on how humans drive organizational value.
Steph serves as adjunct professor of strategy in the Bainbridge… [Read more about Steph Sharma]


Kori is co-owner and Operations Director of Lead the Difference.​ Through consulting, research and analysis, organizational strategy and culture understanding, she collaborates with and empowers leaders and organizations to eliminate risk, create long-term value, increase productivity and profits,…
[Read more about Kori Joneson]


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