A manifesto for human capital with a bold five-point action for reform saw its London launch on 10 February. Michael Reddy, chief executive of new-launch Human Potential Accounting, told the audience that the treatment of people as cost-only was inadequate. ‘It’s a funny name for your most important asset,’ he said.
The five principles of the manifesto are:
• The shortcomings of conventional financial reporting are hurting business,
• The impossibility of adequately representing people – the ‘biggest asset’ – on the balance sheet is a limiting factor,
• The true costs of employing people are consistently under-reported on the P&L,
• Private equity and venture capital specialists are unable to gauge the true value of people assets, and liabilities, in a target acquisition,
• The short-termism of the stock market is an underlying key obstacle to reform.
With the launch taking place just three weeks after the Kraft-Cadbury takeover, Dr Reddy added: ‘The reason mergers & acquisitions fail is down to people factors.’ He called for a radical shift in perception, away from exclusive focus on historic accounts, towards an actual analysis of strengths and weaknesses in the staff who make up the company.
Core data from HR systems can be added to qualitative information to build up a picture of workforce strengths and weaknesses. Human Potential Accounting, in common with leading US human capital analyst Laurie Bassi, who also addressed the event, have developed ‘people index’ charts. These give at-a-glance indicators of, for example, units with high employment tribunals, or incidence of employee financial distress, alerting managers to risk factors. Equally, they indicate areas of strong performance.
‘The P&L hides rather than elucidates the true costs of employing people,’ Dr Reddy added. ‘The result is that financial reporting consistently presents a misleading picture of the financial health of the organization.’
Human Potential Accounting is a Milton Keynes-based provider of human capital analytics. http://www.hpa-group.com