Video: Are people a company’s greatest asset? Part 1
We discuss the financial returns from investing in people.
Vicki Owen (VO): “It’s often said that people are a company’s greatest asset. A company’s employees are what helps it become successful. So it will come as no surprise that what’s termed human capital management is one of our active ownership team’s six key themes for engagement with holdings.
“And I have two experts with me today to dig a little deeper into what this topic means. Angus Bauer, who’s Head of Sustainable Investment Research, and Katie Frame, who’s our Engagement Lead on social topics in the Active Ownership team. Welcome.
“So, Angus, Katie – how important is this area of human capital management to you in your roles?
Angus Bauer (AB): “Employees are a vital stakeholder. They are a key source of competitive advantage. They’re also an appreciating asset, which is a fascinating thing to think about because it goes against the traditional accounting paradigm. Employees are an expense item unless we’re talking about a very unique set of companies that are able to capitalise them. And so whilst companies say that people are our greatest asset, accountants say, well, they’re not. They’re a cost. But the reality is when a company invests in Katie or myself, or you, what they’re doing is investing in our long run capabilities.”
Katie Frame (KF): “And I’d just add, I guess we’re hearing this more from our clients in terms of how they value the importance of this theme for engagement. This came out really strongly in the 2022 institutional investor survey.
“For example, I think human capital was ranked the fourth most important team by investors for us at Schroders to be engaging on. And actually, when you looked at it broken down by region it actually topped thematic priorities in some regions, such as Latin America.”
VO: “It’s clearly very important in both of your roles, both research and on engagement with companies. And Angus, how much evidence is there actually to suggest that human capital management is a driver of sustainability or of performance or both?”
AB: “The evidence base is growing, but we’re starting from a low base. I mean, historically, disclosure on human capital topics has been poor. Simplistically, I’m sure we’ve all had that warm and fuzzy feeling where we feel like we’re enjoying conversation, we feel bonded to our team, we feel like there is a high sense of trust there. That is the kind of employee outcome that leads to lower turnover rates, it leads to lower feelings of burnout, lower sickness days and so on. And so the financial consequences are tangible but the employee stakeholder consequences are equally as important.”
KF: “We’ve been engaging a lot recently with US retail companies around provisions of sick pay. The US being one of only two OECD countries that doesn’t have federally mandated sick pay laws. So we’ve identified it as an area to further our engagement activity with these companies.
“And actually, the companies that are doing this really well, providing sick pay amongst a range of other benefits, and these might be health benefits, but it could be things like employee discounts, paid time off, that might not necessarily be related to illness.
“We’ve heard from companies that those benefits are actually coming through in the employee outcomes. I think one really great example, we spoke to one US retailer and they were actually able to draw that link between the provision of benefits, which they thought were really competitive, and actually enhanced employee outcomes. This retailer talked through how actually employees that they’ve monitored and seen actually engage with their benefits offering, they saw a three times higher retention rate for those employees.”
VO: “Well, thank you very much for bringing that to life for us.”