Investors Should Care About a Company’s Talent Strategy
By Don Robertson
Experienced investors have a wide range of indicators that help them predict if a company is well-positioned to grow in the future. Savvy traders listen for clues in quarterly calls and scan corporate reports detailing organizations’ earnings per share, operating margins, debt-to-equity ratios, cash flows, and more.
Don Robertson
Alongside these data points, I’d argue for one more important cue for careful consideration. Be sure to research a company’s sustainable investments in its human capital. Are they investing in their talent?
The simple truth is that the organizations with the best talent have won the day. And in 2022 and beyond, the organizations with the best talent are going to win again. That’s why there is fierce competition for talent taking place in America and globally.
Human capital can be a business driver. In fact, in 2012, London Business School’s Alex Edmons found that the companies on Fortune’s “100 Best Companies to Work For in America” list generated higher stock returns per year than their peers. Given that, it only makes sense that shareholders should ask tough questions about a company’s culture, talent development strategy, employee engagement scores, and diversity and inclusion initiatives.
An organization’s commitments to its talent are especially important in a recessionary economic environment, which many experts say is a possibility in our not-too-distant future. Whispers about layoffs at several big-name Silicon Valley companies are surfacing in mainstream media like Business Insider, while other organizations have already moved to cut staff.
And in C-suite conversations across the country, some leaders are considering changes to their benefits, compensation structures, and incentives. Many companies – especially those that are publicly traded – get caught up in economic cycles, feeling a need to demonstrate financial results to shareholders each quarter, no matter what. And when business gets a little tough, leaders often start looking for ways to demonstrate strength.
Buy-and-hold investors should consider if companies are thinking longer-term and prioritizing their talent. Organizations that stay committed to their employee value proposition can build higher employee morale, higher productivity, higher employee engagement, and lower vacancy and turnover – all drivers for bottom-line results. Promises kept in the face of adversity can tell investors much more than a number in a spreadsheet within a quarterly report ever could.
More organizations are seeing evidence of a correlation between attrition and revenue. In fact, some large U.S. banks are now tracking employees’ opinions of management and their emotional connections to the company – because organizations with engaged employees may deliver greater returns to investors than others.
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In addition to driving growth, sustained investment in talent is also the right thing to do.
Human capital is increasingly significant in conversations about ESG investing – using Environmental, Social, and Governance data to evaluate an organization’s sustainability. Recent studies by McKinsey and by MarshMcClennan found strong parallels between companies with a strong ESG proposition and increased employee engagement as well as greater talent acquisition and retention.
Of course, if someone feels like they don’t have to cut corners or take excessive risks in pursuit of short-term gains, they can make more responsible and sustainable decisions on behalf of customers and society overall. Moreover, according to the studies, energized and engaged employees who believe in an organization’s mission are more productive and less likely to be lost to attrition.
Since late 2020, the SEC has required publicly traded businesses to disclose more specifics about their talent acquisition and retention strategies. The new guidelines prompt companies to share facts about the makeup of their workforce, initiatives relating to diversity and inclusion, recruiting and retention strategies, employee engagement survey results, pay equity data, and talent development efforts. Done well, these reports can give investors a sense of companies’ talent strategies. And if that strategy is left unsaid in the reporting, sophisticated investors should follow up.
What should investors watch for?
Now is the time to ask leaders about their talent strategy. During quarterly shareholder calls, company leaders typically talk about their annual or multi-year strategies to create growth, ensure competitiveness and build relevance. These conversations are an ideal time to ask if each organization has a firm plan to attract, retain and develop the talent they need to deliver on those business-critical initiatives. Press to understand their employee engagement rates, attrition rates, advancement rates, and DEI scores. Taken together, these data points may indicate where value will be found in the months and years ahead.
This is also an ideal time to review studies that seek to quantify which companies are the best places to work. Organizations like Fortune, Forbes, Glassdoor, and Inc. track data from employees and the entities they serve to create indexes and annual rankings. Businesses that consistently rank highly – in good times and challenging times – may be more committed to their talent strategies than others that rise and fall.
Lastly, keep a close eye on digital conversations. Social media chatter and websites can offer us all an unvarnished inside look at organizations across the globe. If sentiment is positive, greater prosperity may be on the horizon.
About the author: Don Robertson
Don Robertson is executive vice president and chief human resources officer, and a member of the senior leadership team of Northwestern Mutual – a $34+ billion, Fortune 100 financial services company, the largest U.S. provider of individual life insurance, and manager of more than $540 billion in combined company and client assets.
Don launched his career in accounting, finance, and sales, as well as the support of IPO efforts, before moving into HR. He currently serves as a member of the CNBC Workforce Executive Council, on the board of directors for the Wisconsin Humane Society and the Zoological Society of Milwaukee, and on the board of advisors for Catalyst.
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