The right sort of profit is societal value

Tapping the reservoirIf you are a serious HR professional then you will already know that since 2010 SHRM has been trying to establish itself as the leader in HR standards; not just in the US but globally.  Things are not going according to plan though. SHRM’s draft proposal for ‘Investor metrics’ was unceremoniously dumped last year after another HR institution, the HR Policy Association (HRPA), which represents the interests of many CHRO’s in very large corporations, sent them a highly critical and stinging response. This has left a huge hole in HR’s credibility with investors and anyone responsible for due diligence during M&A activity.

If that were not bad enough the whole debacle has exposed the extent to which professional HR bodies are still failing to agree with each other about the most fundamental tenets of human resource management. What was remarkable about the HRPA’s letter was not just the unusually strong language but their outright rejection of the investor standard both in principle and practice.  It raised many objections but of particular interest, to MI members at least, was the HRPA’s reluctance to reveal commercially sensitive information in public.  Their letter states: –

“Further, companies disclosing the information proposed in the standard could be placed at a considerable competitive disadvantage relative to organizations seeking to raid their talent; competitors trying to gain insights into how they are organized, staffed and structured; and hedge funds and other entities seeking financial prey. Our members support the use of targeted and useful internal HR metrics, but they strongly object to the prospect of having their confidential and proprietary HR information being put on public display.”

Of course, no company wants to lose its ‘trade secrets’ to a competitor so MI’s first question is – which of HRPA’s members has any HR secrets worth knowing?  One member of the HRPA Board of Directors is the Senior VP of HR at General Electric, the original home of forced ranking, a very dubious practice indeed (and one badly imitated in many other corporations) yet openly publicised by its progenitor Jack Welch. In ‘The Puritan Gift’, probably the best management book ever written, the authors remark (p. 236) that under Welch’s successor, Jeff Immelt: –

“… the company appears to be trying to discard or soften this (rank and yank) procedure”

It is a well-known fact that HR people are more interested in copying each other than they are in seeking evidence, itself a clear indicator of HR immaturity, as Professor Jeffrey Pfeffer acknowledges in his Foreword to Professional HR

“That’s the state of play in human resources today mindless imitation of what others are doing, little to no systematic evaluation of the effectiveness of management practices and programs, infrequent data-driven diagnoses of the problems HR is expected to address, in short, little of the professionalism now almost taken for granted in medicine, to take just one example.”

So how can existing HR practices within HRPA corporations be offering any competitive advantage if they are all doing the same things?  Conversely, if they genuinely possess “proprietary HR information” and have evidence of its value surely they would want to advertise that fact to the global market and prospective investors?  If the HRPA has any mature thinkers among its membership they will already know that it is not their HR practices that offer a competitive advantage, per se, but the context in which they operate.  Furthermore, while practices can easily be copied by competitors, the context and culture cannot.  Any company that poaches ‘good people’ quickly learns that they cannot guarantee those same people will perform as well in an entirely different, organizational context.

This level of mature thinking leaves HRPA corporations facing a much bigger question.  Their CEOs know that the moral legitimacy of a capitalist corporation is founded on conventional economic theory of competitive markets offering the best allocation of resources for the greatest benefit of society.  Making the best use of human capital is an integral part of that theory and MI already has clear, comparative indicators to assess how much value an organization is likely to gain from its human capital.  These are not secrets, they are already in the public domain and MI wants to share them for the greater good; just as the most professional doctors want to make their cures available to as many of the world’s population as possible. How can the world gain the greatest value from its entire reservoir of human capital if there is no way of sharing the best methods?

So if SHRM or HRPA members want to know what meaningful investor metrics look like they can join MI.  There are significant improvements in both profits and share price awaiting them and, much more importantly, these same corporations will then find it much easier to demonstrate their real value to society as well.

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