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Weighing In on the HR Standards Debate

The HR Policy Association and Laurie Bassi, leader of the SHRM Workgroup on Investor Metrics, take aim at Peter Cappelli's The Dust-Up Over HR Standards and more. Cappelli's response follows.

Wednesday, August 22, 2012
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Professor Cappelli Misses the Point Regarding SHRM's Proposed ANSI Disclosure Standards for Investor Metrics

In his recent article addressing the so-called "dust-up" between HR Policy Association and the Society for Human Resource Management over SHRM's proposed ANSI standard calling for the public disclosure of certain corporate HR metrics, Peter Cappelli seems to have missed the point at issue, and his article risks confusing the debate.

To begin with, it is not a dispute between just HR Policy Association and SHRM. This proposal has managed to aggravate a wide range of trade associations, as well as groups whose members handle investor relations at large companies. Among them are the American Staffing Association, the National Investor Relations Institute, the Society of Corporate Secretaries & Governance Professionals, thought leaders in the CFO community, and prominent commentators in the HR world (see the full list here). Some have already filed letters with SHRM's Secretariat opposing the proposal, but most were hoping it will fizzle out on its own. If SHRM decides to move forward with it, other business groups can be expected to weigh in.

Cappelli characterizes SHRM's proposal that companies publicly disclose their internal HR data as a "rather harmless idea" intended primarily to standardize HR metrics and advance the profession. He sees its opponents as resisting for no other reason than the standard line that it would be costly and time-consuming to implement.

The trouble with this interpretation is that it ignores the fact that disclosing this level of detail regarding internal HR metrics would inflict competitive harm on public companies, while there is little indication it would even be material to investors. Nobody is arguing that this data is not useful internally; large companies have been utilizing far more sophisticated HR metrics than these for decades. But SHRM's proposal is essentially asking that once a year public companies publish an org chart, their staffing strategy (internal vs. external hires, plus full-time vs. temp), and a roster of their brightest up-and-coming talent, as determined by who was promoted that year and where they came from. It puts a company's inner workings on display to competitors, hedge-fund analysts, and worst of all, outside recruiters -- arming them with a map to the company's top talent.

Cappelli argues that HR Policy's members are opposed to SHRM's proposal because they "don't see themselves as HR professionals. They see themselves as executives of their companies first and foremost." Well, yes, that is what they are. HR professionals, like all other professionals working for an organization, have a duty to put the organization's interests first, and one of those interests is the protection of proprietary internal strategic data necessary for the success of the enterprise.

There has been a running debate for decades over whether those in human resources really understand the business function of the companies for which they work. Unfortunately, both Cappelli's argument and SHRM's investor-metrics proposal validates the perspective that many in HR do have a different agenda. If the objective is to ensure that HR professionals are not part of the senior-executive team, then both Cappelli and SHRM should keep advancing this flawed proposal.

Michael D. Peterson  
 
Vice President, Benefits and Employment Policy; Associate General Counsel

HR Policy Association

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And HRPA Has Also Missed the Point

In his letter, Michael Peterson fundamentally misstates the details of the proposed SHRM standard. I should note that I do, however, agree with him on two fronts -- first that Professor Cappelli misses the point regarding SHRM's proposed ANSI standard for investor metrics, and second that Professor Cappelli is off base in characterizing the proposed ANSI standard as a "rather harmless idea" intended primarily to standardize HR metrics and advance the profession.

But that is where my agreement with Mr. Peterson ends. Let me begin with the latter of these two points. At the most fundamental level, the effort to produce Guidelines for Reporting on Human Capital to Investors is a part of the solution to short-termism -- a chronic, destructive disease that has afflicted our society for (at least) the past three decades. This disease has been fueled in no small part by compensation systems, on and off Wall Street, that have focused excessively on short-term profits at the expense of long-term, sustainable profits. Investments in the future -- most notably human capital -- consistently get the short-end of the stick, largely because they're currently not measured and reported as anything except costs.

Given the pernicious nature of the disease, we should not expect it will be solved by perpetuating the status quo. Moreover, it is no surprise that some of the power players in the system are actively and vociferously resisting change -- including resorting, as has HRPA, to attacking the integrity of those involved in the effort.

The needed change must and will come from outside the system. Increasing transparency and accountability are the way of the future, and while those attempting to preserve the status quo can throw up barriers and attempt to slow the process, they will not be able to stop it. The ultimate winners -- both among corporations and institutional investors -- will be those who embrace this change. And as a result "human capital" -- people -- will be better off.

There is one key fact everyone needs to know. The standard does not ask for the things HRPA argues against. Mr. Peterson states that "SHRM's proposal is essentially asking that once a year public companies publish an org chart, their staffing strategy (internal vs. external hires, plus full-time vs. temp), and a roster of their brightest up-and-coming talent, as determined by who was promoted that year and where they came from."

This is simply not true. It was not true in the first draft of the standard, and to clear up any possible confusion on this point, the second draft (soon to be released) makes it abundantly clear that this is not what the standard is calling for. It does call for companies to (voluntarily) provide basic metrics on their human capital management and investments -- metrics that can be compared across companies so that investors have more information about who's making investments in the future (and who's not). Undoubtedly, there will be some who will continue to willfully misinterpret the standard and attempt to throw roadblocks in its way, but they are on the wrong side of history.

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So back to the first point that Mr. Peterson makes -- yes, Professor Cappelli misses the point. This is about far more than a dust-up between two HR associations. There is a great deal more at stake.

And HRPA also misses the point. The standard will help reduce short-termism by providing investors with information that they have both a right and a need to know.

This is not for or "about" HR. It is about making the world a better place. 

Laurie Bassi

Leader of the SHRM Workgroup on Investor Metrics

CEO of McBassi & Co.

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Cappelli Responds to HRPA and Bassi Letters

Michael Peterson knows that he is misrepresenting what I said in my column about HR-standard setting.

To illustrate, he says I characterize the SHRM proposal as a rather harmless idea when, in fact, the sentence actually says that the general idea of reporting standards, not the SHRM proposal, "seems on the face of it like a rather harmless idea," and I then go on to describe why it is actually a big deal. So it was the exact opposite of what he implies.

The reason he misrepresents what I say is to have an excuse to write and then to put forward his employer's view of the debate on HREOnline.com. This is one way "spin" is practiced in the world of lobbying.  

Certainly there are reasons to argue against the SHRM position, and the HRPA and Mr. Peterson have a perfect right to advocate for their position. But they don't have a right to turn this column into a lobbying exercise.

Despite Mr. Peterson's efforts, I can see pros and cons on the general standards issue, which is why I am not taking a position on it.

Given that he has written, however, let me point out what is simply wrong about his argument. The most important part is his assertion that professionals have an obligation to put the interests of the organization that employs them first, over their professional norms. That is absolutely false, and I am sure the American Bar Association, of which he is presumably a member, would find his statement deeply troubling. Subverting legal and accounting professional standards to serve an employer's interest is not only seen as unethical, it is very often illegal. That is why the "professional vs. executive" aspect of this debate about which I wrote is so interesting and important.

While Mr. Peterson says I missed the point by not agreeing that HR standards are a bad idea, Laurie Bassi says I missed the point by not agreeing that standards are a good idea.

Probably not enough agreement among them to start a friendship, though, given what follows.  Her comment is a critique of Mr. Peterson's statement, and even though I don't feel like defending Mr. Peterson, her case would be more persuasive if we could see why investors would benefit from getting this human capital information.  Investors, who are the owners of companies, certainly have a right to information about what their companies are doing, but they can't see everything, so why this?

Given the above, maybe they are right that my phrase "dust up" for this dispute was not accurate. Maybe barroom brawl would be better.

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