In this series, White Marble's ESG team highlights the key themes that we believe will take centre stage over the next 12 months and beyond. In this third article in the series, the team takes a look at human capital management, and how the environment of the last year has heightened awareness of its role in businesses.
Human capital management as a function of good corporate governance
In the context of a pandemic, human capital management has never been more in the spotlight or more crucial to a business's success. As over 80% of office workers around the world headed to the 'home office'1 this time last year, businesses faced both huge risks and opportunities. As the last 12 months have played out, some companies have shown their strengths in how they have handled the situation. Others have not.
Human capital management is a set of strategies and processes by which a company guarantees that their workforce is properly equipped and protected to carry out their jobs effectively. This includes ensuring they remain motivated and satisfied in their work - factors that are proven to have a positive impact on productivity. Although often grouped as a social factor, as with many environmental and social factors, all the good intentions in the world would be nothing without the processes put in place through corporate governance to ensure that they are effectively implemented.
The World Economic Forum (WEF) highlights the important role of human capital management in the future of work: "forward-looking human capital strategies that align with the needs of the organisation and that support employees through difficult changes give companies a competitive advantage to attract diverse talent, mitigate potential staff shortages, and create a strong culture".2
In their research, the WEF has identified six key themes within human capital management/governance that are likely to see a continued and increased focus over the coming months and years.3
- Employee pay
- The pandemic and other events have highlighted issues of social inequality, including gender and race pay gaps in the workplace. Companies in all sectors are likely to see increasing scrutiny of their remuneration policies going forward.
- Employee wellbeing
- Workforce health, resilience and well-being are ever more important as we emerge from the pandemic and employers begin to figure out what the workplace will look like moving forward. Companies in all sectors are grappling with the need to address employee concerns and minimise company risk.
- Inclusion and diversity
- Has furlough reduced diversity in the workforce because of the nature of job types that have been furloughed?
- Racial and ethnic diversity (or the lack of it) is as important an issue as ever. It continues to stay front of mind following on from the Black Lives Matter protests of last summer.
- Future of work
- The pandemic has accelerated shifts and trends that were already underway, from technological literacy to the feasibility of remote working.
- Companies that invest in their workforce now to ensure that they are 'future proof' will go a long way towards mitigating risk, whilst increasing their competitiveness and profitability in a sustainable way.
- Promoting a culture that encourages well-being has become crucial. The definition of a good leader/manager has shifted and adapted as workforces work from home, and many of these features are here to stay.
- Firms in many industries are considering if there is a need to broaden the definition of what skills and experiences constitute 'critical talent', especially as regards succession planning.
- After a year of remote working, it is challenging to instil a feeling of team spirit and camaraderie in the workplace. Companies are learning how to use value and purpose to create certainty for employees and help them to understand how to best contribute to the overall business strategy.
The COVID-19 pandemic has reminded us all of the link between human health and the success of businesses.
Failures to act responsibly with regards to human capital management can often be seen as a proxy for poor corporate governance at a broader level, or at best an outdated concept of the role of corporate governance. Companies who do not give due consideration to the vital role of their workforces could be paying the price for many years to come.