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$2.6 Trillion Investor Coalition Sees Link Between Human Capital Management and Shareholder Return

With an increasing volume of research demonstrating the link between levels of employee engagement and share-price performance of public companies, it was only a matter of time before investors began to take note. Enter the Human Capital Management Coalition (HCM Coalition), a consortium of 25 diverse global institutional investors representing $2.6 trillion in assets that was “formed to increase disclosure on human capital management metrics that are important to companies’ performance,” according to a statement from the UAW Retiree Medical Benefits Trust, which leads the coalition.
 
“Human Capital Management is an important indicator for long-term investors of a company’s value. The HCM Coalition engages companies with the aim of understanding and improving how human capital management contributes to the creation of long-term shareholder value,” the group states. “Our coalition engages companies on business practices relative to HCM, as HCM makes for good business and provides long-term value.”
 
The UAW Retiree Medical Benefits Trust is reportedly the largest non-governmental purchaser of retiree healthcare in the U.S. The Trust provides access to health benefits for approximately 720,000 eligible retirees from GM, Ford and Chrysler. Separate and distinct from the UAW, the Trust is governed by an 11-member committee.
 
Formed in 2013, the HCM Coalition initially focused on the retail sector. “The retail sector has a high number of employees creating exposure to reputational risk – either directly or through supply chains such as experienced in Bangladesh and Pakistan – that can adversely affect shareholder value,” says a Coalition spokesperson. “Conversely, there is a great opportunity for the retail sector to invest in human capital and thereby increase company value. Costco, for example, has made large investments in human capital with positive results for the company and investors.” The Coalition cites MIT Professor Zeynep Ton’s book, The Good Jobs Strategy, and a long list of other sources, many familiar to ESM readers, that show companies that invest in human capital as a value proposition outperform their competitors financially.  
 

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The Focus is on Shareholder Return
The initiative is focused only on the issues that affect return to shareholders, according to the spokesperson. In that vein, the Coalition prefers to work behind the scenes in meetings with corporations rather than publicize their efforts. “Since we are dealing with leaders at some of the world’s largest companies, we believe that quiet diplomacy is the best approach,” notes the spokesperson, adding that while the “more voices that are heard on the importance of human capital management as a value-builder can only help,” the Coalition itself is closed to other pension funds; it is “at capacity,” she says. 
 
“The HCM Coalition is comprised of long-term shareholders that are seeking disclosure and analyses of human capital management in order to evaluate a company’s ability to deliver long-term value,” the Coalition’s statement explains. “The Coalition looks at human capital management through an investor’s lens,” the spokesperson explains, emphasizing that the they are only concerned with long-term return to shareholders.
 
In addition to meeting periodically and sharing information through various forums, the Coalition has contacted senior executives at leading public companies to, as they note, “request a dialogue regarding the company’s oversight of the financial, legal and reputational risks inherent in human capital management. The Coalition is engaging with these companies and others through a variety of approaches, from letter-writing to direct conversations and meetings. Overall, companies have been receptive to engaging with the Coalition on, for example, board oversight and performance metrics. The HCM Coalition has a long-term commitment to the issue of transparency on corporate practices related to human capital management. The coalition is global and diverse and sees disclosure on human capital management metrics as an important corporate governance issue. The goal is to have robust information on human capital management available to long-term investors. The engagement work of the Coalition is done by its members’ corporate governance staffs.” 
 
As explained in a letter to corporate executives, the goal is to create an “efficient mechanism for engagement by allowing companies to reach out to a large and diverse group of investors to discuss corporate governance issues without holding numerous calls with similarly-interested shareholders throughout the proxy season.”
 
The following is a transcript of the questions asked of the companies with which the Coalition engages, providing an early insight into the types of questions more and more investors will be asking of public companies, and which many will be asking of themselves, to determine if they are optimizing their human capital across the organization. 
 
General Questions to Public Companies by the Coalition
This is only a summary of a more detailed document requesting information on all aspects of human capital management disclosure affecting almost every practice related to employees.
 
Board Oversight

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Operational Integration
Data Collection, Risk Management, and Accountability
Employee Engagement

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Incentives and Compensation Structure
 
Investor Engagement and Disclosure

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