The old arguments about capital versus labor are as outdated as Karl Marx's beard (ok, maybe not in Brooklyn...). It is simply prudent leadership, management and resource allocation strategy to focus on those factors most likely to generate value. JL
Lauren Weber reports in the Wall Street Journal:
Amid a tightening labor market, a growing number of shareholders, managers and researchers have begun paying closer attention to the connection between labor management practices and financial performance. The group describes its mission in financial terms, arguing that companies expose themselves and shareholders to great risks if they are not managing people well.
With little fanfare, representatives from 24 funds, mostly union and public pension funds, have been meeting monthly for the past two years. The Human Capital Management Coalition, as it is called, presses companies like Gap Inc. and Wal-Mart Stores Inc. for details and, sometimes, changes in the pay and treatment of workers.
The group describes its mission in purely financial terms, arguing that companies expose themselves and shareholders to great risks if they are not managing people well or fairly. That focus also dovetails with members’ roots in unions, which have an interest in strengthening what they view as weak labor practices—a tough order as organized labor loses clout in many industries.
Amid a tightening labor market, a growing number of shareholders, managers and researchers have begun paying closer attention to the connection between labor management practices and financial performance. Firms like Gap, Wal-Mart, Target Corp. and others have made a business case for raising wages.
Formed in the wake of the 2013 collapse of the Rana Plaza factory building, which killed more than 1,100 garment workers in Bangladesh, the coalition was spearheaded by the $61 billion UAW Retiree Medical Benefits Trust. Members include the Office of New York City Comptroller Scott Stringer, which oversees the city’s pension funds, Amalgamated Bank, the Nathan Cummings Foundation, and the California Public Employees’ Retirement System, the nation’s largest public pension fund by assets.
Currently, companies divulge hardly any details about how they manage and invest in their workforces. The Securities and Exchange Commission requires few disclosures beyond an annual employee head-count number, so what companies do put out about workforce management can be vague, inconsistent, inscrutable or all three. For example, quarterly financial filings don't include line items for workforce training and development, much less total payroll data.
“The lack of disclosure has put human capital into a black box for a long time. This group decided to break open the box,” Meredith Miller, chief corporate governance officer at the UAW’s Trust, said in a July interview.
The coalition has requested meetings with board representatives and executives, and is seeking information on pay, budgets for training, and whether boards of directors have oversight on HR matters, among other things.
So far, the coalition has communicated with seven companies, all retailers or fast-food chains with global supply chains, including Costco Wholesale Corp. , Gap, Kohl’s Corp. , McDonald’s Corp. and Wal-Mart.
None of the companies has ignored the group’s queries, although some have been more willing to engage than others, said Ms. Miller. For example, the group brought a list of questions to a meeting with Costco chief financial officer Richard Galanti and several other executives soon after it formed. “It was a positive meeting,” he said.
For now the coalition is primarily flexing soft power—one member described conversations as “open-ended”—but isn’t afraid of trying harder-edged tactics such as proxy campaigns to achieve its goals.
Wal-Mart spokesman Randy Hargrove said the retailer has had talks with representatives of the UAW Trust, which has filed governance resolutions with Wal-Mart, though not under the umbrella of the coalition, but declined to comment on the substance of those conversations.
The coalition’s most notable accomplishment so far has been with Gap, where members say they played a behind-the-scenes role in how the retailer is framing its 2014 decision to raise wages for its lowest-paid store workers.
Members recommended that Gap consider the work of Zeynep Ton, a Massachusetts Institute of Technology professor who coined the term “good jobs strategy,” in which employees are treated as an asset rather than a cost. Her research has documented a connection between higher profits and use of such strategies.
A company spokeswoman said Gap’s discussions with the group have been “constructive and have helped surface new ways of thinking about our ongoing investment in our people,” but declined to comment further.
The other companies the coalition has spoken with declined to comment or didn't respond to requests for comment.
The coalition has been reviewing research and speaking to retailers with the intent of developing criteria that allow investors to compare different companies’ labor practices, and the attendant financial, legal or reputational risks, said Ms. Miller.
One of the key reports reviewed by the group so far is a meta-analysis of 92 studies examining the relationship between human-capital policies and financial performance, released this spring by the Pensions and Capital Stewardship Project at Harvard Law School and funded by the Investor Responsibility Research Center Institute. Of the 92 studies, 67 found a positive correlation between investments in training and HR policies and outcomes like profitability, stock price and sales growth.
At least one investor is examining these issues from a nonfinancial perspective. Earlier this year, hedge-fund billionaire Paul Tudor Jones II unveiled Just Capital, a plan to develop an index of companies that ranks firms on whether they exhibit “just” behavior.
The HCMC is partly following the model of investor groups pushing for standards around sustainability disclosures, although measuring a company’s carbon footprint is easier than quantifying HR practices. Such policies are among “the squishiest and hardest to pin down” in terms of financial risk, said Aaron Bernstein, an author of the Harvard report.
But more investors are interested in the metrics. Mr. Bernstein has discussed the Harvard research with stock exchanges studying whether to adopt disclosure standards for human capital and other sustainability measures.
Compiling that information may be tricky, even if companies agree with the idea. Often firms cannot even say with confidence how many people work for them, since they track certain employees via HR and others, such as contractors or temps, via procurement offices, workforce experts say. The rise of HR software systems that provide clearer workforce data could ease the task of disclosing data on human capital.
Still, given the corporate outcry over the SEC’s new rule requiring public companies to disclose the ratio between their CEO’s pay and that of an average employee, the group’s quest won’t be an easy one.
“To be fair to companies, they are bombarded by requests for disclosure,” Mr. Bernstein said. “The environmentalists want 50 things, the human-rights people want disclosure, the corporate governance activists want it. It is a laundry list.”
Write to Lauren Weber at lauren.weber@wsj.com
There are 4 comments.3 people watching.All comments will display your real name. Read our commenting rules.Subscribers OnlyJoe Hood Carl Castrogiovanni
Ah, that says it all. This isn't altruism or good business; it's union greed (and power lust) pure and simple.Patrick Plemmons Richard Rosso
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