MCBASSI & COMPANY

How Investors Rank Companies

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Bottom line
How investors “grade” a company is almost identical to how the company’s employees grade it.

Implications

  • In a world of increasing transparency, where employees’ ratings of their employers are easily made public (see, for example, Glassdoor.com), shareholders’ interests are increasingly aligned with employees’.
  • Investor relations departments need to be paying more attention to what their company’s HR department is doing, and how that is being communicated to external stakeholders.

The Evidence
Over the past few years, we have been collecting data on how both employees and investors rate companies on 12 attributes measuring company actions and attitudes in three domains: Employers, Sellers, and Stewards (of the community and environment).  For example, one of the attributes measured in the Employer category was whether the well-being of employees was of great importance to the organization being rated.

After assessing each of the 12 attributes, the raters were asked to assign an overall Good Company grade from “A” to “F” to the company they were rating.  We then used combined data from all respondents to analyze statistically the relationship between each separate attribute and the overall company grade.  This made it possible to determine which attributes were, on average, of greater or lesser importance in shaping a respondent’s overall assessment of a company.

Our analysis found the relative importance assigned to the various attributes is virtually identical between investors and employees.  Items in the Employer domain are overwhelmingly the most important for both groups.  For both groups, all four Employer attributes are among the raters’ five most important attributes.

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Strategic People Measurement

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As the importance of human capital management continues to grow as a differentiator between high and low performing firms, there is both the opportunity and necessity for the HR function to become more strategic.

The process of becoming more strategic requires asking better questions, deploying clever analytics, and just as important, being able to articulate how HR creates value.  The graphic below is the framework we use to help guide HR functions as they seek to become more strategic.

While the specifics, of course, vary from firm to firm, the framework is sufficiently general to serve as a powerful foundation and starting point, no matter what your firm’s size or industry.

So what do you think?  Is this a framework that could work for your firm?  Let us know – we’d love to hear from you!

Where Does Human Capital Fit in the Sustainability Agenda?

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My new article in the May 2014 issue of the Cornerstone Journal of Sustainable Finance and Banking explores new research (with David Creelman and Andrew Lambert) on the progress some companies are making in reporting human capital metrics in their integrated reports.

While encouraging that a growing number of firms are beginning to disclose more information on elements of human capital, it’s clear that most of the disclosures still fall short of providing a comprehensive look at what’s creating or destroying value on the people side of the business.  Indeed, many key human capital measures known to predict future performance (employee engagement, training investments, internal promotion rates) are being reported by less than half of even those companies integrating financial and human capital reporting.

I propose a framework that CEOs and Boards of Directors can use for two purposes:

  • To measure and manage six key elements of human capital risk
  • To serve as a foundation for communicating more effectively with investors

Curious?  Check out the article for full details.

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Five “must haves” for effective change management

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Most of us want to work for a “Good Company” – one that prospers because it is a good to its employees, customers, and the environment.   But most of us also know how challenging it can be to make the necessary changes.

Over the past decade, we have learned a great deal about what it takes to get (and stay) good, both from companies that have succeeded, and maybe even more importantly, from those that have failed.

There are five components essential to successful change management:

  1. A CEO who “gets it” and commits the resources necessary for change to occur. If your CEO doesn’t fit this description, then this is where your change management work has to begin.  You have to make the case for change in the language of the “C suite” – by presenting a compelling business case for change, based in evidence and hard-nosed analysis.
  2. Managers who are skilled in the behaviors needed to make change happen from the ground up. Achieving this requires a systematic, disciplined approach to change management. (Remember that “hoping” is not an effective change management strategy!)
  3. A performance appraisal system that supports the desired change. If you want people to change their behaviors, then that message needs to be reinforced through your performance appraisal system.  For example, if the only performance that is appraised and rewarded is achieving short-run business results, then that is what will get done.
  4. Smarter measurement systems. Ditto on #3 above.  In order for an organization to change, the metrics it uses to measure its progress must include some that focus on the desired change.  In particular, they must go beyond short-term measures of productivity and profits.
  5. An HR strategy that supports all of the above. Change is about getting people to behave differently.  As a result, HR has a critical role to play.

Change management is a subset of human capital management.  Those organizations that build this competence are better positioned to be the good companies that will survive and prosper for years and decades to come.

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Update on SHRM Investor Metrics Workgroup

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For the past year, I have been leading SHRM’s Investor Metrics Workgroup, which is a key component of SHRM’s larger standards setting initiative.  I am pleased to report that we have made significant progress.

In December a draft Investor Metrics Standard was passed by the Workgroup.  This month, the draft Standard will move on to the next step of the process, which is a vote by the larger SHRM Metrics & Measurement Taskforce.  After that the Standard will go through a public comment period, and if necessary, revisions.  Then, finally it will be an official ANSI standard (and it may then go on to be considered by ISO as an international standard).

(Turns out the standards-setting process has many steps!)

As the next steps of this process unfold, we will be looking for firms that are interested in beta-testing the standard.  So if you think this might be of interest to your organization, please contact me directly, and I can provide you with more detail on the draft standard and the process for beta-testing it.

Decision science: measuring/valuing training

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Laurie Bassi was recently interviewed by Human Resources IQ regarding the importance of training investments as a predictor of company performance – and how that information can best be used within your organization:

The most effective training professionals and HR professionals are those who are learning how to blend compelling quantitative analysis with the ancient art of storytelling.

Read the entire interview here.

CFO Magazine features Laurie Bassi

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Brand-new article in CFO Magazine explores measuring the impact of training and development investments – and features McBassi CEO Laurie Bassi.