You may have missed it, but in November 2018, the International Organization for Standardization (ISO) released its Human Capital Reporting Standard. The standard calls for 23 metrics divided into nine categories:
- Costs (total workforce costs)
- Workforce diversity
- Leadership (“leadership trust,” to be determined by employee surveys)
- Organizational safety, health, and well-being
- Productivity (EBIT/revenue/turnover/profit per employee; human capital ROI, or the ratio of income or revenue to human capital)
- Recruitment, mobility, and turnover
- Skills and capabilities (total development and training costs)
- Workforce availability (number of employees; full-time equivalents)
The standard also says companies should make an additional 36 measurements but report them only internally. These include two additional categories—organizational culture and succession planning.
While many people involved in this project view it is ground-breaking, attempting standardization is not new.
Jac Fitzenz introduced the idea standardized reporting in 1978 and spent the next 35 years training people in over 50 countries on how to do it.
In December 2012, the Society for Human Resource Management (SHRM) dropped the proposed human capital metrics standard it was creating for the American National Standards Institute.
The intent of the standard was to help investors evaluate the worth of a company’s human capital. The standard was dropped was due in part to it being perceived as burdensome and the metrics irrelevant to investors.
How much do people care about the new standard?
Since the new standard was announced, there has been little additional press. This flash-in-the- pan announcement and intrigue could be due to timing of the roll-out, lack of knowledge about the subject matter, work overload, of just lack of interest.
In January 2019, the Institute for Corporate Productivity (i4cp) launched a pulse survey to gauge the opinion of practitioners about the new standard. The number of responses: a mere 65.
As all researchers know, response rate can be influenced by any number of factors.
- the survey didn’t make it to the target audience – technology is only so helpful.
- the timing, as with the announcement, was just lousy.
- the target audience doesn’t know enough to respond.
- there simply is no interest at this time.
While lack of interest may have been a factor in the low response to the pulse survey, lack of knowledge about the standards was an issue for the few who did respond.
Over half (54%) indicated they were are vaguely or not at all familiar with the standard.
This may be why three-quarters (74%) of those responding are undecided or don’t know whether or not they will adopt the standard.
A top concern about adopting the standard is that it will take more time than it is worth, with 38 percent selecting this response choice. This sentiment was echoed by members of i4cp’s People Analytics Board (PAB) during our recent review of the standard.
Granted, standardization is difficult, especially when the meaning behind metrics varies. In fact, the bigger issue is not about standardizing metrics, it’s about identifying the questions then determining the metrics that best answer them.
One important benefit of the new standard, according to 49% of respondents, is that complying with the standard is an opportunity to better connect HR’s efforts to the business—something for which senior leaders have long been asking.
As a few members of i4cp’s People Analytics Board noted, the standard provides a framework that can be useful in aligning metrics to the interests of the board. For those responding to the survey, the most important metrics represent compliance and ethics (82%); costs (75%); diversity (75%); and leadership (50%).
Should we care about the new standard?
I don’t mean drop what you are doing just to comply with a standard that is still developing. You’d benefit more by demonstrating impact and ROI for all those expensive HR activities that are in question. But I do think it’s time to consider the ISO standard as a framework for reporting on talent management to senior leaders and board members. Why?
Today, there is far more interest than in the past in knowing how and the extent to which organizations manage and invest in their people, and the results of those investments.
For example, in 2017, the Human Capital Management Coalition (HCMC), a group of 26 institutional investors with aggregate assets of more than $3 trillion, led by the United Automobile Workers (UAW) Retiree Medical Benefits Trust, petitioned the US Securities and Exchange Commission (SEC) to require public companies to disclose information about their human capital management.
On March 22, 2019, Cambria Allen-Ratzlaff, Corporate Governance Director of the UAW Retiree Medical Benefits Trust, wrote Anne Sheehan, Chair of the Investor Advisory Committee with the SEC, reaffirming their support of the adoption of such standards, using the new ISO standard as another lever in the argument.
Additionally, management of and investment in human capital is an important factor in an organization’s environment, society, and governance (ESG) performance, which is an important standard to investors. Corporate social responsibility (CSR) activities can influence that performance. These activities can have a positive impact on community, employees, and the financial well-being of an organization. Tyson Food’s Upward Academy is just one example of how an organization balances CSR and business outcomes.
By including people measures as part of standard corporate reporting, investors can see the full scope of organization sustainability. In fact, a new study by the HR Policy Association, finds that the CHRO’s role in ESG activities is becoming ever more important.
Finally, the National Association of Corporate Directors (NACD), an independent not-for-profit organization and the US’s only membership organization devoted to improving corporate board performance, is encouraging board members to better understand an organization’s talent. With this type of encouragement, board members are inclined to ask more questions about the people-part of the business.
The key is to get ahead of the ask.
While the ISO Human Capital Reporting Standard is still new and the adoption of it just beginning, as we have seen with other HR accountability practices, waiting until asked can cause more trouble than it should.
Unlike SHRM’s earlier attempt at standardization of people measures, the new ISO standard, or some version of it, will likely take hold.
So, think about the questions your senior leaders, board members, and investors ask about the business and what talent management metrics align with those questions. What measures do you have readily available? If you don’t have measures, maybe now is the time to pursue them.