The controversy that has erupted over bonuses at UK banks highlights the extent to which business leaders, shareholders and the Government ignored human capital in the run-up to the credit crisis, the Human Capital Forum has reported. Measures covering people risk, people management, and alignment of compensation and business strategies are urgently needed to prevent a recurrence, said Philip Whiteley, chair of the Forum.
He pointed out that in December 2005 the then Chancellor Gordon Brown scrapped plans for an Operating & Finance Review, which would have forced listed companies to report on people management practices in their annual reports.
‘Human capital reports would not have been enough on their own to prevent perverse incentives in the bonus system, but they would at least have directed regulators and investors to a source of business risk,’ said Mr Whiteley.
‘When Gordon Brown ditched the Operating & Finance Review, many of us said that he missed the point. The business lobby and the Treasury regarded such a report as “red tape”. This was a misconception and a missed opportunity. Proper reporting on human capital is not just about headcounts and employee profile – but about people performance and people risk.’
The reason that reports on human capital would not be enough on their own is that their introduction needs to be combined with a longer-term focus. If they were still on the annual reporting cycle, the performance measures are unlikely properly to be geared to long-term organisational resilience.
One of the few business thinkers to highlight the weakness of long-term stewardship of companies is Professor Bob Garratt, who will deliver a presentation at the next meeting of the Human Capital Forum. For more information, email philipwhiteley@humancapitalforum.com