Are Board Directors Still Behind the Curve on People Management?
Originally published in ESM at EnterpriseEngagement.org.
A recent report published by the National Association of Corporate Directors (NACD) reads like a playbook from the past. Despite all the talk about Stakeholder Capitalism, human capital management, and reporting in the business media over the past year, the organization’s list of board priorities indicates a growing awareness of the people business, but that there is a long way to go.
A recently published newsletter by the NACD reports on the priorities for the board of directors for 2021. The prescriptions sound like more of what the organization could have prescribed in any year with little serious acknowledgment of the fundamentally different dynamics coming out of the pandemic. The summary does talk about the renewed focus on non-financial reporting and on “continuous ESG (environmental, social, governance) learning for future-fitness oversight,” and board realism in a “net-zero” world.”
The newsletter’s prescriptions beg the question: what have we learned from this crisis as it pertains to people? What burning issue should boards address relate to people, based on all that has happened? What about the need for developing purpose-driven strategies or finding new ways to create value through people instead of from them? What about the opportunity to leverage employees as valuable assets with tangible returns on investment, instead of treating them as a cost or commodity?
Recently, the World Economic Forum’s virtual Davos event held several sessions on its new “Stakeholder Capitalism” principles and metrics that aim to provide more transparent information on human capital investments and outcomes, yet the NACD report says nothing about this topic. Recently Ernst & Young published a LinkedIn survey finding that people are considered the most important metric for measuring Stakeholder Capital. Yet employee advocacy and engagement and the importance of incorporating these issues into corporate strategies do not appear to be keeping pace with demand. The only way this will change is if there is a total change of priorities and reorientation for management leadership.
It seems to me that over the past year there has never been more discussion about the people component of the business or a greater recognition that employees represent a significant lever to enhance organizational performance. This begs the question of why boards still are not holding their management accountable to establishing, executing, and measuring engagement aligned with their purpose and culture. If boards are not giving proper attention to these topics, why should management?
Nowhere in the NACD summary are there any recommendations related to treating the workforce as an asset. Little is mentioned about human capital management, metrics, and reporting, undoubtedly one of the hottest topics in the business media today. There is no identification of the necessary training and development or other engagement processes advocated by the Enterprise Engagement Alliance’s education program or ISO 10018 people engagement standards, or those of other organizations focused on a strategic and systematic approach to people management.
Here are just some of the facts regarding employee engagement and why it is so critical to operations and therefore boards of directors and CEOs:
• A six-year study conducted by the human resources analytics firm McBassi for the Enterprise Engagement Alliance of 40 companies with high levels of customer, employee, and community engagement collectively outperformed the S&P 500 by over 37 percentage points. The companies were selected by the McBassi human resources analytics firm based on over a dozen independent metrics.
• A study by London Business School professor Alex Edmans, published in the Harvard Business Review, found that the companies in the Great Places to Work list outperformed the markets by on average 3% a year over 28 years.
• The annual Barron’s 100 Most Sustainable Companies list in 2020 outperformed the stock market for the fourth year in a row.
• A survey of over 3,000 Americans by JUST Capital, an outreach group, found that over 70% prefer to do business with companies that focus on people.
It has become clear that people are the last bastion of value creation. Until boards change the incentives for CEOs and senior management, many organizations will continue to overlook a significant opportunity to improve returns for shareholders.
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Allan Steinmetz CEO