All business leaders share the same fear, which may be a mantra: “Please God, don’t let me screw it up on my watch…”. But how do you know what to change and what to retain?
1. What is the role of culture in business? I have never worked with clients who state, “we need to change our culture.” However, I frequently work with clients who state, “we need to reduce conflict or increase our communication skills.” That indicates a business opportunity to teach about culture, then accelerate learning for my clients. There is plenty of confusion about culture.
2. So what is culture? I favor the definition from Edgar Schein that culture has 3 levels: 1) artifacts (what we say and do, the physical objects or rituals that reinforce desired behaviors), 2) shared values (why we say and do certain behaviors) and 3) unstated assumptions that may be constructive or destructive. One resource is at https://www.managementstudyhq.com/edgar-schein-model-theory.html. Another is this image:
3. How do we understand the artifacts of culture? We ask for examples and celebrate each example. For instance, if we start a meeting by asking each participant to share an example of an important artifact, then we instantly hear stories of what they value. I recently shared a plaster sculpture of two hands from our children that sits on my desk. I love it as a reminder of why we do this work…. Artifacts may include photos, songs, rituals, objects or traditions.
4. What are our shared values? Most privately-held businesses persist because people know their values and then celebrate them regularly. Each meeting can start with examples of how that stated value on the lobby wall is manifest in recent actions. Surveys and polls from the owners, and stories from Uncle Fred (for instance), will reinforce quantitative and qualitative examples of shared values.
5. How do we understand the shared assumptions? External advisers and managers are paid to “assess and recommend.” With care. Repeatedly. We can be like chameleons who adjust our colors, and we can also be video choreographers using Zoom to provide/solicit behavioral feedback in the moment. Discovery has never been easier or more accurate. Managers need to ask deep questions about what needs to persist and what needs to change. With care. Repeatedly. When we ask probing questions like “What else do we need?” or “How else could we implement that project?” then we identify the disconnects. A candid linchpin, or customer, or in-law, may be more insightful than a manager who avoids taboo topics.
6. Cultural narratives abound. The words we use to describe the founder (for example) are often repeated and reinforce “larger than life” impacts. Notice your reaction to these phrases: “I have no dogs in this hunt, I live and work in Switzerland/ model neutrality, I’m working for the whole organization, not one person, I’m not here to push a specific outcome/agenda, naturally I cannot ever fully understand the complexity of your business history.” I often write notes of key narratives that seem to be repeated. Then I ask, “does this phrase accurately describe your culture?”
7. Process maps provide visual maps of “now and next”… We all use images/ models/ data visualization all the time to “create pictures” or “see others.” Our brains retain and retrieve pictures faster than words, even when we are dreaming. That’s another reason why Instagram is more engaging than reading an academic journal. Process maps can be created in the moment to list possible solutions, do a journey map, ask about future states. Examples can include photos of the past, sociograms of the present, or vision maps of a future state. I often use a simple chart with Schein’s culture model (artifacts/actions, shared values, assumptions that are constructive or destructive), during a business meeting to process behavior. Those process maps help me organize data into cultural schemas. When useful, I may share the process map. Or not.
8. Timelines may also be useful to reflect on the past and focus on that windshield view, rather than that rear-view mirror view. When leaders are stuck/ hostage to the past there may be a need for clinical experts/ therapists. I use genograms to varying degrees (software includes GenoPro and SmartDraw). Genograms can be a team shared activity that increases understanding of antecedents, potential risky behavior patterns, genetic heritage, as well as trends in signature strengths.
All owners share the same fear, which may be a mantra: “Please God, don’t let me screw it up on my watch…”
There are no formulas for what to retain or what to change. There are no stages. There are multiple lenses used to describe culture (e.g., financial, strategic, ownership, management, ethical, technological). There are cultural layers that may be useful to describe culture (e.g. artifacts, values, assumptions).
How to Comply with Human Capital Reporting Rulesin 3 Steps
Guest article from John R. Mattox, II, Ph.D., Action Learning Associates
People drive value for organizations, now more than ever.
Too many managers and leaders struggle with quantifying that value. They do not know how to create competitive advantage. Do you know the VALUE of your Human Capital?
Dave Vance, the Executive Director of the Center for Talent Reporting, (www.centerfortalentreporting.org), recently published an article in Chief Learning Officer (CLO) Magazine that described when the Securities and Exchange Commission (SEC) will require human capital reporting.
On August 26, 2020 the SEC revised that rule and now requires that organizations report information that is “material”—meaning anything that an investor would find valuable when considering buying a security. That is BIG news. That ruling includes human capital metrics. Do you NEED to measure the VALUE of your Humana Capital?
Thankfully, there is a readily available framework for measuring and reporting human capital. The International Standards Organization (ISO) which has improved product quality and consistency around the globe with ISO 9000, has developed a standard for sharing meaningful measures of human capital called ISO 30414.
How Should You Prepare?
There are many ways to approach this IS) 30414 Human Capital Reporting Standard. Here are three steps that will certainly help:
Assess your current state. Look across your systems, analytics resources, and reporting processes. Can the current state in your organization provide the information needed? The likely answer is no, but that is okay, because it is a starting point. The output of this step should be a document that defines what you have, and what you don’t have. We can help.
Plan for your future state. You need to close your data and reporting gaps identified in step 1. Leverage your systems, teams, and processes. Prioritize the metrics that your stakeholders say are most important. Also spend time determining how much effort will be required to obtain each metric and report it. Use the business needs and efforts required as guides for prioritization.
Deliver. Practice generating a full report regularly. Start today. Each attempt should identify persistent gaps and areas that need process improvements. Set a date for when you need to deliver the full report without any missing data. Drive towards completion. Launch the report and share results with stakeholders long before the final report is needed for reporting or compliance reasons. Continue to iterate and improve.
Conclusion
ISO 30414 provides a useful framework for gathering, analyzing, and reporting results
Prepare by examining the current state of your HR analytics practices; close gaps on the metrics that need to be reported
Leverage your internal resources, systems, and processes
Engage external resources like Action Learning Associates, with expertise in HR analytics and ISO 30414.
I doubt that your team is ready for the SEC. Let me explain.
The Securities and Exchange Commission (SEC) currently requires publicly traded companies to report ONLY ONE metric about human capital: number of employees. Human Capital is their biggest expense. For investors, that ONE METRIC does not provide adequate information about an organization’s most profitable intangible resource- human capital. For HR and business leaders, that one metric is NOT SUFFICIENT to monitor and manage the workforce effectively.
Human Capital metrics are essential to 1) manage the workforce and 2) drive business value.
On August 26, 2020 the SEC revised its rule on Human Capital Reporting. Anything that has a “material influence on the operations and profitability of the organization should be reported.”
Privately-owned businesses WILL follow publicly-traded organizations. They always have.
A wide range of human capital metrics will apply. Thankfully, there is a well-researched and comprehensive framework for measuring and reporting human capital metrics. We can help your team immediately.
The ISO 340414 standard outlines 11 areas that organizational leaders should measure and report on various aspects of your workforce. The purpose is to give investors insights into the people-side of the business. Equally as important, ISO 30414 gives the c-suite a standard set of metrics to monitor and manage to improve the organization.
What are the Human Capital Measures?
The ISO standard contains 11 general reporting areas which are listed below:
Compliance and ethics
Costs
Diversity
Leadership
Organizational culture
Organizational health, safety, and well-being
Productivity
Recruitment, mobility, and turnover
Skills and capabilities
Succession planning
Workforce availability
Along with these reporting areas, the new ISO 30414 standard provides specific metrics and recommended ways to calculate each of these measures.
You can expect updates to definitions and calculations in the coming years as practitioners adopt and apply these ISO 30414 standards. We can help you.
Back to my question: Is Your Organization Prepared?
The question for you is simple: Are you ready? I doubt it.
Is your organization ready to adopt this ISO 30414 framework, measure your workforce, take action to improve your organization, and also report that information internally and externally as needed? I doubt it.
If you have an HR analytics team, there is a good possibility that you can analyze and report some or even all of these metrics. If you do not have an analytics team, your system administrators might be able to cabal together a representative set of measures. But you will still require our help.
Based on the LinkedIn Global Talent Trends study (2020), 85% of those surveyed think people analytics will be a dominant function in human resources in the coming years. Yet, 55% of those surveyed say they “still need help putting basic people analytics into practice.”
Nearly half of all organizations are not prepared for ISO 30414 human capital reporting.
Sadly, I doubt that your team or organization is ready for the SEC. We can help you.
Is Human Capital Reporting Required?
This is a simple question that has a complex answer. The current answer is “no.” The SEC does not require publicly traded companies to report anything more than the number of employees. However, other countries like Germany are requiring extensive HC reporting and they are basing their efforts on the ISO 30414 standard. Dave Vance, the Executive Director of the Center for Talent Reporting (www.centerfortalentreporting.org), recently published an article in CLO Magazine describing when the SEC will require human capital reporting. The current answer is that the SEC is likely to require publicly traded companies to report “material information”—meaning anything that an investor would find valuable when considering buying a security. That is very broad language and will likely encompass all Human Capital measures.
The ISO 30414 provides a useful framework, valuable metrics, and informative calculations and will likely serve as a guide for future organizations. We recommend that YOU adopt these measures today.
Conclusion
Most organizations are not prepared today to augment current public financial statements about the health of their company with information about human capital. However, information about “material influencers of the business including human capital” are now required by the SEC for publicly traded companies.
ALL organizations need to prepare for ISO 30414 compliance. You will soon be required to leverage internal resources like analytics groups, HR systems, and standard measurement processes.
Most business leaders will need to hire external consultants like Action Learning Associates, with expertise with HR analytics and the ISO 30414 standard. Not only will you need to be compliant with new SEC rules, you will be able to recommend solutions to your c-suite leadership team. Your biggest expense is Human Capital. Soon you will be required to manage your investments in people and improve all aspects of your Human Capital business. Why wait?
Call us TODAY to get started.
John Mattox, PhD and Doug Gray, PhD can be reached at contact us or 615.236.9845.
Guest article from John R. Mattox, II, Ph.D., VP of Action Learning Associates
Doug Gray, Ph.D., CEO of Action Learning Associates
Tangible and Intangible Assets
Financial capital is the lifeblood of businesses. It allows leaders to invest in the tangible and intangible aspects of the organization that will drive growth and achieve business goals. From an accounting perspective, people are an intangible asset. Like tangible assets such as real estate, buildings, computers, manufacturing equipment, raw materials, etc., WE KNOW that people bring substantial value to the organization.
“We hire the best people,” is not a marketing catch phrase for companies like Google, Amazon, Qualcomm, McKinsey, KPMG, and other organizations that rely on innovations and intellect to achieve their mission. The best people develop new technologies. They build products that can be patented and resold. They program better and faster to streamline business operations.
Yet, the accounting industry struggles with quantifying intangible assets and how to report them on.
Why is this so important?
Investors (individual or corporate) review auditing statements to determine whether a company is a worthwhile investment. An article by EverEdgeGlobal.com titled The Missing Trillions: Valuing Intangible Assets provides several examples of the disconnect between current valuation statements and actual value in the market. Here is the quote that kicks off the article, “According to a recent report from the UK Treasury, the world’s five most valuable companies are together worth £3.5 trillion, yet their balance sheets report just £172 billion of tangible assets. The other £3.3 trillion of value is missing in action.” Investors are no longer well informed because accountants cannot accurately report the value of intangible assets.
HR is going to drive change for business within the next 3 years.
Until recently, the only human capital metric that was required for public reporting by the Securities and Exchange commission (SEC) was the number of employees.
On August 26, 2020 the SEC ruled that companies should start reporting information about human capital. Why? Wouldn’t it be valuable to know the turnover rate within an organization or the vacant positions among leadership? What about culture? Diversity? Ethical violations? Would this information change the way you value a company and influence whether you invest or not? The SEC’s answers to these questions are yes.
The International Standards Organization (ISO) agrees.
In 2018 after several years of discussion and development in technical committee, the organization approved ISO 30414, a standard for Human Capital Reporting. This NEW standard recommends that large organizations report 23 people metrics and small organizations report ten metrics.
The ISO encourages organizations to adopt these standards so all organizations can provide useful information to stakeholders. The standards also allow for comparison across organizations—again, to help make more informed investment decisions. The standard also serves as a guide for organizations that are not measuring human capital well. It is a playbook of important measures. Peter Drucker said, “If you can’t measure it, you can’t improve it.” Here is the opportunity for organizations to get better by measuring and managing one of their largest costs and also one of the greatest influencers of profitability.
What are the Human Capital Measures?
The ISO standard contains 11 general reporting areas which are listed below:
Compliance and ethics
Costs
Diversity
Leadership
Organizational culture
Organizational health, safety, and well-being
Productivity
Recruitment, mobility, and turnover
Skills and capabilities
Succession planning
Workforce availability
Along with these reporting areas, the standard provides specific metrics and recommended ways to calculate them.
Expect updates to definitions and calculations in the coming years as practitioners adopt and apply the standard. Conclusion
Employees are gaining recognition as a differentiator that adds more value than traditional tangible assets. For decades business owners and audit leaders have struggled to frame and quantify the value that employees bring. Now with the ISO 30414, there is a viable framework and detailed measures for demonstrating value.
The SEC is now requiring publicly traded companies to report material information about human capital.
Let me repeat that: The SEC is now requiring publicly traded companies to report material information about human capital.
Measurement and reporting of these metrics will provide investors with valuable information to fuel decisions. It will also provide business leaders with valuable metrics to monitor and manage a critical driver of success.
If you need additional information, please contact John Mattox or Doug Gray at Action Learning Associates by phone 615 236 9845. We can help your team measure and manage your ISO 30414 compliance initiatives. Get ahead of the curve. Call us today.
You may think I’m a good planner. Not always true. When my loved ones want a Christmas gift they send me digital links. I select something. Then on Christmas Eve I run around Nashville, TN to pick up my gifts. It’s a long time habit. Full of joy and occasional last minute substitute gifts.
Apparently I’m not alone.
On December 24, 20198 I raced into a jewelry store at Green Hills Mall in Nashville to pick up a gift.
Marshall Goldsmith was doing the same for his loved ones.
You may know Marshall as the best-selling author of “What Got You Here Won’t Get You There” (2007) or “Mojo” (2009) or “Triggers” (2015). Or as one of the most influential executive coaches and leadership consultants of our time. Or as a contributor of CoachSource, the largest global provider of executive coaches, where I serve as an engagement manager.
Or as another person racing around to find meaningful gifts for his loved ones.
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