Human Capital Measurement l Mercer Australia

Raising the stakes: Human capital management as an investor priority

Bridget Murphy, Principal – Diversity & Inclusion

Effective human capital management is the cornerstone of long-term performance. It underpins innovation, risk mitigation and corporate sustainability – all the things investors look for when considering where to put their money.
A thriving workforce is both an asset and competitive advantage.

Can you measure and demonstrate the value your organisation’s culture and human capital offer to prospective shareholders? 

Human Resources (HR) leaders are the stewards of what is arguably an organisation’s most valuable asset – its people. To maximise the value of that asset, HR leaders need to work with corporate leaders in the C-suite and on the board to form a consistent approach, communicate that approach internally and externally, and implement and monitor it consistently.

External communication is key, attracting prospective investors, other talented employees and customers. It starts with robust disclosure of why inclusion matters and how it is embedded into your corporate strategy.  A company that can articulate the value of – and barriers to – an inclusive culture is also one that is likely to reap the associated benefits. 

Articulating value

Those benefits are many. Attracting, keeping and developing the best people who have complementary capabilities, and who work in an environment where different perspectives are valued and included in decision making are indicators of a well-run business and great company culture. That’s because diverse groups solving complex problems make fewer assumptions, explore more possibilities, communicate more effectively and ultimately deliver superior solutions. HR is tasked with implementing an inclusive strategy, and robust analytics can help track progress and identify problem areas.

Understanding risk

The risks associated with lapses in culture are also many. In recent months, the Australian Securities & Investments Commission (“ASIC”) has indicated it may “regulate culture”, although what that means remains unclear. What is clear is that regulators are considering their options for sanctions with more teeth. Other risks are more subtle and harder to capture. Those risks come in the form of reduced productivity, disengaged workforces and chronic underperformance.

Investors and regulators care about culture as a business driver and a risk, and are increasingly engaging on this important issue with investee companies. So what does good look like? What metrics and disclosures are useful for investors? How can HR leaders, as stewards of the culture strategy, help boards and executives communicate a company’s good work? 

Growing investor engagement

Mercer was recently involved in a focused investor working group for the 30% Club in Australia, an advocacy group pushing for measurable progress on women on boards. The investor committee prepared and launched a toolkit to help investors in their engagement efforts on diversity with investee companies.

The Australian Council of Superannuation Investors (“ACSI”), the peak body for asset owners, and the Financial Services Council (“FSC”), representing investment managers, also provide a guide on environmental, social and governance (“ESG”) engagement, which includes a section on human capital management. 

HR practitioners are more important than ever

These guides reiterate the importance of a well-articulated strategy first, followed by disclosure of key metrics. HR teams are critical in executing an inclusion strategy, but ultimately – like all key strategic business drivers – the C-suite and the board must own the issue and model inclusive leadership from the top. 

How involved and aware is your board when it comes to your organisations inclusion strategies? Let us know. We also recently introduced our Diversity Connect Network, a business focused group aimed at helping business practitioners tackle D&I problems collectively.

For more information or to discuss any of the above, please contact us using the below form.

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