Human Capital Management - Background & Rationale

Sometime ago the UK government, through the Department for Trade and Industry, set up a Task Force to examine the manner in which UK employers could and should take a strategic approach to the development of their human assets in order to maximise their performance (and through their performance, their employees performance) and ways in which this could be reported on to their owners. Historically directors of companies have been required to report to their shareholders mainly on financial figures. However, that emphasis has been changing over the last decade.

'Although the reports of the directors are addressed to the shareholders, they are important to a wider audience, not least to employees whose interests boards have a statutory duty (under the Companies Act 1985) to take into account' (Cadbury Report on Corporate Governance.)

'Effective employee dialogue can help staff feel more involved and valued by their employer, make them better aware of the business climate in which the organisation is operating and help them to be more responsive to and better prepared for change. This in turn can benefit the business through better staff retention and lower absenteeism, increased innovation and adaptability to change. This should allow a greater ability to react to opportunities and threats, thereby ultimately enhancing a company's productivity.'

(Introduction to DTI's consultation document 'High Performance Workplaces: Informing and Consulting Employees' - the forerunner of UK legislation which will implement the EU Directive on Informing and Consulting and require UK employers to set up WORKS COUNCILS.)

Rationale
Nowhere in the world does there exist an organisation that can achieve even the simplest of its goals other than via the efforts and interactions of those that work for it. Whilst Boards of Directors have the ultimate responsibility to manage and direct, their aims can only ever be achieved via the actions of their employees. As former chief executive of ICI, Sir John Harvey Jones stated in 'Making it Happen', his best-selling management book:

'with the best will in the world and the best board in the world and the best strategic direction in the world nothing will happen unless everyone down the line understands what they are trying to achieve and gives of their best.'

The benefits that flow from employers:

attempting where possible to deal with an organisation's human resources in a mature and adult way by a process of real and proactive communication (the 'communicaction' principle);

recognition that those employees have other strong pressures in our modern society which may require the employer's requirements to be sublimated at times (the 'flexibility' principle);

acceptance that most employees are rational thinking human beings with ideas and opinions of their own which can be of considerable mutual benefit to both employer and employee (the 'consultability' principle); can be considerable.

During research for a study ('New community or new slavery? The emotional division of labour'), the Work Foundation (formerly the Industrial Society) found that one in three employees stated that work was the most important thing in their lives. For some employees, dismissal or being made redundant can equate to the trauma of divorce. For many home is a place of oppression whilst work is a place of liberation. Half of those asked stated they like their job and would carry on working even if they had enough money not to need to.

Those organisations who have actively involved their employees in more general terms to drive their businesses forward, report considerable and tangible benefits as the following selection of quotes and data indicates:

1. In an article in 'Involvement' the journal of The Involvement and Participation Association, Dr Jon White of the City Business School recorded that as a result of research carried out on a worldwide basis over 20 years the conclusion was that:

'there was a consistent correlation between high performance and good organisational communication. This data shows that businesses benefit dramatically from good communication management - but also that (in the UK particularly) this message has fallen on deaf ears.'

2. The Economist report on 'Corporate cultures for competitive edge' argued that 'strong business performance depends upon open and free communication between all levels of an organisation.'

3. The Institute of Directors refers to research on employee communication in its Guidelines for Board Practice. Of companies with employee communication policies, over 65% credited them with creating significant improvements in increased productivity.

4. MORI research disclosed that one in three employees felt that they could do more work without effort, but that 53% of those surveyed felt that management was more interested in giving its point of view than in listening to what employees had to say. In addition, previous research concluded that around 50% of employees were capable of performing at a level one above that at which they were performing.

5. Towers Perrin, employee benefits consultants, report that in the US research on 135 highly performing companies indicates that the management in all these companies constantly seek suggestions from frontline employees, delegate and maintain two-way communication.

(From the author's 'Financial Reporting for Employees' - Gee.)