Andrew G. Gordon is partner at Equilar, Inc.; David F. Larcker is the James Irvin Miller Professor of Accounting at Stanford Graduate School of Business; and Courtney Yu is Director of Research at Equilar, Inc. This post is based on a recent paper by Mr. Gordon; Mr. Larcker; Ms. Yu; John D. Kepler, Assistant Professor of Accounting at Stanford Graduate School of Business; Amit Batish, Manager of Content and Communications at Equilar; and Brian Tayan, researcher with the Corporate Governance Research Initiative at Stanford Graduate School of Business. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here) and Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock by Leo E. Strine, Jr. (discussed on the Forum here).
We recently published a paper on SSRN, Human Capital Disclosure: What Do Companies Say About Their ‘Most Important Asset? that examines corporate human capital disclosure choices following the SEC’s revision of Regulation S-K items last year.
Over 20 years ago, McKinsey penned a famous piece called the “War for Talent,” which argued that corporate success in the dawning information age would hinge on a company’s ability to attract, retain, and develop the most talented members of the labor force. The concept that high-performing talent is both scarce and critical to performance triggered a cottage industry of professionals and specialists dedicated to developing “strategic” human resource programs that position companies to “win the war for talent” and serve as a competitive advantage. Those efforts are broadly referred to as human capital management (HCM).
The primary challenge, which still holds true today, is how to measure the contribution of human capital to corporate strategy and performance. Human capital is an intangible asset (employees are not capitalized on the balance sheet), and its value only shows up indirectly in future corporate results. While some studies link HCM to future performance, the methods for measuring HCM are tenuous at best. For example, Edmans (2011) finds that employee satisfaction scores (a proxy for HCM quality) are positively correlated with long-term stock performance. Employee satisfaction, however, is not a comprehensive measure of HCM.
