Join the webinar on Monday, May 11th at 2:00 PM to review the findings of the latest research from the Investor Responsibility Research Center Institute (IRRCi) and the Pensions and Capital Stewardship Project at Harvard Law School’s Labor and Worklife Program.
The Materiality of Human Capital to Corporate Financial Performance connects the dots on the relationship between corporate human resources (HR) policies and investment outcomes such as return on equity, return on investment and profit margins. Of the many studies of human capital policies, the new paper examines 92 that focus on the links to corporate financial performance. The authors find that a large majority of the studies – conducted over several decades and encompassing dozens of countries and industries – reported positive correlations.
The research offers compelling evidence that human capital management can be material to a company’s financial performance. However, investors face significant challenges in attempting to incorporate human capital metrics into investment analyses. The study als also offers investors questions to consider asking companies information about with respect to HR and training.
Speakers on Corporate Human Resources & Investment Outcomes
- Larry Beeferman, Co-Author and Director, Harvard Law School’s Labor and Worklife Program
- Aaron Bernstein, Co-Author and Senior Fellow, Harvard Law School’s Labor and Worklife Program
- Jon Lukomnik, IRRCi Executive Director
Download the research and news release here.
The Investor Responsibility Research Center Institute is a nonprofit research organization that funds academic and practitioner research that enables investors, policymakers and other stakeholders to make data-driven decisions. IRRCi research covers a wide range of topics of interest to investors, is objective, unbiased, and disseminated widely.
Intuitively we know that exceptional talent and high employee engagement make a company more successful. We know that high performing teams are more productive and high trust work environments support all of the above.
The challenge for human resources executives and managers, however, is to translate that intuitive understanding into concrete metrics that justify their commitment to the necessary HR policies and people investments.
HR Policy and Investment Outcomes
The Investor Responsibility Research Center Institute (IRRCi) together with Larry Beeferman and Aaron Bernstein (Labor and Worklife Program, Harvard Law School) may have just made this connection a little easier to illustrate. They recently completed an analysis of existing research into the relationship between corporate HR policies and financial performance, to determine whether they are connected. The results of their research offer strong evidence of positive correlations between HR policies and key financial metrics, including return on equity, return on investment and profit margins.
In designing their investigation, one of the challenges the researchers faced was finding empirical studies that focused on the financial impacts of HR policies, since human capital has historically been seen as a social component of the corporate structure rather than a bottom line contributor. In the end, they found 92 studies “that used conventional investment indicators to emphasize the conclusion that human capital is material under definitions acceptable to the U.S. Securities and Exchange Commission and U.S. securities law.”
The majority of those studies demonstrated positive correlations between training and HR policies with respect to better investment outcomes. The following table from the report illustrates the frequency of these positive correlations.