Valuing the largest intangible asset, human capital, is at the forefront of most investors’ minds. It is the hardest asset to quantify yet is integral to corporate competitiveness, as it is something your competitors will find hard to replicate.

At True North Analytics, we put the top 10 listed London Stock Exchange (LSE) companies to the test. We evaluated their businesses against our ‘People Index’, our analytics-driven Human Capital health-check to see just how well they really rated. The evaluation is based on published information and considers a number of human capital factors such as gender diversity, investment in people and transparency in people reporting.

Who are these companies?

The top 10 combined represent 27% of the total market capitalisation and most of these companies have deep pockets to express their extensive plans and initiatives around their people. Combined they employ nearly 2 million people and most pride themselves on being employers of choice, at the forefront with their diversity programs.

The hard stats around human capital

However, when it comes to reporting facts and figures, many rarely disclose hard statistics around their human capital. The CIPD’s Value Your Talent initiative estimates that the FTSE 100 spend £200bn a year on staff, but barely recognise these as assets. The findings from the ‘People Index’ concurred with this result concluding that 70% of the Top 10 LSE companies scored 5.5 or less out of 10. This sends a message. whether intentionally or not, that the PR messaging is not congruent with reporting on a key asset.

The reasons behind the conclusions

You may ask yourself, ‘Why is this?’ It’s about how transparent your human capital reporting is but just reporting it will not take you to the finish line. Take for example GE, who recently earned a top ranking on the Corporate Equality Index ratings of the Fortune 100, making them one of the “Best Places to Work” with well-articulated policies as well as being named as one of The Times Top 50 Employers for Women in the UK, stating their female workforce make up 40%.

Yet against the ‘People Index’ they fall short, predominately for not disclosing specific gender diversity splits in the workforce as a whole, just pockets of where it is known that the statistics look good.  

In contrast the French company Total, who were specific and transparent on many of their people metrics rank at the top of our People Index with a score of 7.3. PR around their human capital is on par with that of GE and equally the company invests heavily in diversity initiatives such as sponsoring the 2014 Global Summit of Women. By combining both transparency in financial performance and human capital they are providing an integrated view of the company’s ability to continue to contribute to their performance model.

Perhaps here the difference is in legislation, as EU parliament proposed new legal requirements to improve gender balance on the boards of European companies. The legislation would require the balance of nonexecutive directors to be 40% women by 2020. The French approach was to take it that step further to cover executive as well as nonexecutive board members and go beyond the EU plan of making this exempt to the executive board.

The bottom of the barrel

At the bottom of the People Index you will find Toyota with an evaluation reflecting a lack of transparency in a number of people related areas. This is in stark contrast to their top position, from a market capitalisation perspective. Without factual insight into people-related data, investors and future employees alike are judging by anecdotal stories the company choses to share.  This in hindsight may prove to be a rather ill-disciplined approach to valuing a company’s largest and most important asset.

Investors and future employees need transparency and hard facts around people data and performance of the company to get a holistic view. Intuitively most of us know that it is important and is a key contributor to sustainable performance.

Reporting about human capital is the ‘hot’ topic, and is being actively encouraged by reporting bodies such as IIRC, and FRC. The future will of course mandate this, and initiatives are already underway by lobbyists for UK government to incorporate specific people data in legal filings.

Today, standard frameworks are nearly non-existent. That said, the BSI will be producing a set of standard principles in July 2015 which will help HR professionals to establish the foundations of best practice in this respect. What it fails to share is the ‘how to measure and value ‘Human Capital’ – a problem which the People Index goes some way to resolve.

The move to standardisation

HR has not been subject to the standardisation experienced by most professions. This journey of HR will involve standards of some kind in the future. Key people metrics will be core to reporting. Those organisations deploying data driven strategies and the use of analytics to disclose this as part of reporting cycles will be future proofing themselves for legislation to come. 

The phrase “our people are our most valuable asset” is an oft quoted but rarely quantified intent. Reporting must go beyond just the financials and companies can only deliver corporate competitiveness through an integrated understanding of their capacity to deliver sustained value through their people.

You can download a copy of the Top 10 – People Index infographic here.