Historically, the investment community may not have been seen as a key stakeholder of the HR profession, but as calls for greater transparency on working practices and more insight into board and company culture intensify, new research shows there is a real opportunity for HR to influence investors to make more effective investment decisions.
Indeed, with people analytics and data providing more and more information about workforces, HR is well placed to provide insights into how business can articulate the value of its people.
The CIPD and Warwick University Business School have collaborated to explore how investors make decisions using people data (or human capital information). Our new research The intangible workforce: do investors see the potential of people data? investigated academic literature to understand if and how investors seek data that HR produces, and looked to define which workforce information is of most value to investors.
Quality of management and cost of workforce were found to be key measures in the eyes of investors; and as the research shows, there are many opportunities for HR leaders to help boards to better communicate workforce risks and opportunities to the investment community.
As well as describing some of the opportunities for HR to better influence investors, the paper also notes a number of important biases which may impact the quality of decisions investors make.
Herding (e.g. following the actions of the majority of other investors and maintaining the status quo) and a bias towards financial information are real issues for the investor community, as they may be preventing investors from seeing the value of workforce insights. The research also demonstrates that very little is known about how investment decisions are made in practice, describing a ‘black-box’ which obscures the investment process from analysis and understanding.
The research concludes with a call to HR professionals to utilise HR data to influence boards and to invest in their people data capability through standardisation of measures and improved corporate reporting.
Four key ways HR can influence investors
- There is a lack of understanding in published literature about how investment decisions using human capital / people data work in practice; very little research has been conducted which shows if and how investors use HR insights to understand risk and opportunity.
- A number of different biases affect how investors prioritise different types of intangible data, meaning that people data is less likely to be considered when making investment decisions.
- Issues with people data, including poor quality, reduced visibility and high levels of complexity, mean that investors are less likely to use the information when making investment decisions.
- Mainstream investors (securities analysts) and environmental, social and governance (ESG) investors use people data differently, and as such may want different types of information from organisations they’re working with.
Download the full do investors use people data when making decisions report