Dave Ulrich asks this, “If an investment analyst was a “fly on the wall” in any of your HR meetings would their decision to invest in your company be, BUY, SELL or HOLD? “ At these times HR has the number one opportunity to build investor confidence in their organisations.
Research by accounting professors shows that the regression between earnings and shareholders value has traditionally between 75 and 90.7 %. This means that in the past 75 – 90% of the market value of an organisation could be predicted by the financial performance of the firm. However since then, this percentage has dropped to about 50% in both up and down markets. So if their predictions are not so clearly tied to present earnings, how else do investors predict the market value of your organisation? They are tied to what the financial community call intangibles or the value of the organisation not directly derived from physical assets. They are about the choices leaders make about what happens inside their firm and how investors value those decisions. Intangibles do include R & D, technology and brand decisions but organisation and people are what give investor’s confidence in future earnings.
Investors admire Apple for great product design, Disney for great service and Google for innovation but are patently aware that this success all hinges on the people.
For HR Professionals to deliver value to investors, they must first become fluent in the language their own particular investors speak and fully research the reasons why they invest in their organisation. If value is defined by the receiver more than the giver Dave Ulrich suggests you consistently and deliberately engage with your investors.
Dave Ulrich’s Investor Literacy Test for HR Professionals assesses your base of knowledge to link your good HR work to investor priorities.
1. Who are your 5 major shareholders?
2. What percentage do each of them own?
3. Why do they own you? What are their investing criteria?
a. Dividend stock
b. Growth market
4. What is your tangible value?
5. What is your intangible value?
6. What is your P/E ratio for the last decade?
7. Who are the top analysts who follow your industry?
8. How do they view your company vs your competitors?
9. How are you including key investors and analysts in the design and delivery of your HR practices? [Succession planning, leadership development, reward & recognition]
10. How well does your board govern itself – not just on institutional shareholder service criteria but on the process for good board governance?
More investors are assessing the path between HR investment and business performance. They expect it to be clear and believe that good HR architecture in staffing, training & development, leadership development, communication, compensation and governance lead to positive business outputs. The alignment of a business’s strategy and HR practices is pivotal to investors. Employee commitment is also a lead indicator of customer commitment which is a lead indicator of profitability. At a time where financial performance is in many organisations not quite what it used to be, HR have the number one opportunity to build investor confidence.
Business Results Group and GIBS will be bringing Dave to South Africa to present his 13 milestones for HR to transcend the way the deliver measurable value to their organisations. In JHB on 27 May and Cape Town on 28 May.
Professor Dave Ulrich
Dave has consulted and done research with over half of the Fortune 200. His honours exude a consistent track record of global influence and authority in human resources and business management. His research is based on collective feedback from over 60 000 line managers and HR professionals on the competencies required to improved business performance.
An accomplished and celebrated educator Dave is sought after the world over to present his findings and educate businesses. He has published over 200 articles and book chapters and over 25 books which he has co-authored with numerous fellow thought leaders.