Workforce Data Insight Pitch
Investors are already pursuing data on workforce and spending money and resources on
the data they can find.13 Probing into the quality of human capital is a standard part of
operational due diligence for allocators choosing investment managers. 14 However, the lack of
TRENDS IN GLOBAL EMPLOYEE ENGAGEMENT (2015) https://www.aon.com/attachments/human-capital-
consulting/2015-Trends-in-Global-Employee-Engagement-Report.pdf; Vidya Mani, Sarananan Kesavan, and
Jayashankar M. Swaminathan, Estimating the Impact of Understaffing on Sales and Profitability in Retail Stores,
24(2) PRODUCTION & OPERATIONS MANAGEMENT 201 (2015) https://doi.org/10.1111/poms. 12237; Mark Huselid,
The Impact of Human Resources Management Practices on Turnover, Productivity, and Corporate Financial
Performance, 38(3) ACAD. OF MGT. J. 635 (1995)
https://www.markhuselid.com/pdfs/articles/1995 AMJ HPWS Paper.pdf; jetBlue Profit to Engagement Linkage,
Case Study, HUMAN CAPITAL MANAGEMENT INSTITUTE, https://www.hcmi.co/Resources/Case-Studies/Profit-to-
Engagement-Linkage; Mark Huselid and Brian E. Becker, The Strategic Impact of High Performance Work Systems
(1995) https://www.bhbassociates.com/docs/articles/1995 Strategic Impact of HR.pdf
13
See, e.g.
Letter from John Streur, President and CEO of Calvert Research and Management, to Hon. Gary Gensler,
Chair, U.S. Securities and Exchange Commission regarding Human Capital Disclosure ("Calvert Letter") (Aug. 30,
2021), 5, https://www.sec.gov/comments/climate-disclosure/cll12-9190246-249462.pdf. ("Since retention and
turnover data is not widely available but has been determined to be financially material, Calvert analysts have
developed proxies for turnover to support our analysis of companies and their ESG performance. One example of
such a proxy is an in-house proprietary indicator that was developed for the real estate sector to measure and track
the forfeiture of stock option grants in order to glean the level of professional turnover at companies that offer stock
options as a component of compensation. There are obvious limitations to this approach, as it would not apply to
sectors and companies where stock options are not a component of compensation. Having a standardized, publicly
reported metric for turnover would enhance our ability to more directly measure performance of this important
human capital management factor across all sectors.") Confidential interviews conducted by IAC members further
support this point. A senior investment industry professional at a mid-sized U.S.-based investment firm reported
spending over $1.3MM across four sources for human capital-related data for use in quantitative analysis, observing
that the data was still incomplete. The professional noted that this cost only covered data, not the staff time
necessary to integrate it, stating, “this is why we need companies to disclose the data directly." (Confidential
Interview with Senior Investment Integration Professional. Conducted by Cambria Allen-Ratzlaff [phone], 13 Sept.
2023. Interview notes on file with IAC Investor as Owner Subcommittee Chair) More generally, industry experts
and academics have acknowledged that the lack of a comparable source for standardized human capital information
forces key actors in the investment process to rely on limited approximations of critical data that are often costly,
inefficient, and unreliable. See, e.g., Jack Ciesielski, In Search of Practical Information, Barron's (Oct. 12, 2013)
("Managers like to say that our greatest assets are our people,' yet they tell their shareholders nothing about the
total cost of those greatest assets - until they are eliminated in restructuring actions."); Shivaram Rajgopal, Why the
Public Reporting Model is Broken and How to Fix it, Fortune (Jan. 24, 2020) ("[L]abor costs... are tangled up in
every functional line item on the income statement where labor is employed, leaving pieces to a puzzle scattered
throughout a disclosure. . . .Very few U.S. firms gather the puzzle pieces together for the investigating investor or
analyst to provide a cohesive, total picture of labor costs, stripped away from function.").
14 As explained by the chief investment officer of a large public pension fund in Illinois, "[w]hen we think of
investing and evaluating private equity managers, we are cognizant of the long-term nature of these opportunities.
It's not only the next quarter that we are locking up capital, but we are taking advantage of an illiquidity premium
that will more than likely last beyond 10-15 years. A part of our diligence process is understanding how a general
partner's value creation plan is affected by human capital and workforce considerations to maximize value. We are
addressing and trying to mitigate risk but also identify areas to add durable value within a long-term investing
complex. When we discuss with general partners, they are evaluating workforce metrics similar to that of traditional
business metrics to better assess opportunities to add value or mitigate risks when it comes to workplace safety,
employee satisfaction, and alignment of interests." Joe Aguilar, email message to author, September 14, 2023. At a
May 2023 workforce event hosted by the Human Capital Management Coalition and the University of Michigan
Ross School of Business Business+Impact Program, institutional asset owner and asset manager attendees reported
using the Institutional Limited Partners Association (ILPA) model due diligence questionnaire (DDQ) and diversity
INVESTOR
ADVISORY COMMITTEE
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