Plea for the Development of Accurate Organizational Metrics

Speaker A There's one thing that I want to tell you in that interestingly all the accountants in the world, at least at the regulatory level, care about human capital issues and organizational issues. It's of things that go on in Ro. They may not know very much about it, but they've all understood that if you look at the market value of firm it's quite disconnected from the book value of a firm. So the financial reporting isn't telling the financial investment community as much about the state of health of an organization, the value of an organization as it should. So they've all come to the obvious conclusion which is that companies should spend a lot more time reporting about non financial information. And you find things like this appearing in legislation like the European Accounts Modernization Initiative and in the UK they had something called the OFR Operating Financial Review. They've stepped back away from that. But nonetheless the fundamental issue is the same for accounting bodies throughout the world and they're telling organizations we want to see more non financial information. And when you say well, what do you mean by non financial information? That's when they start waving their hands. But everybody agrees that things like human capital organizational issues are a part of that non financial information. So what we will see is organizations trying to provide useful information to the financial community and the board about the health of some of these intangibles. The requisite organization people are doing and you'll hear from some of them right now is going to be extremely useful for them. And you'll actually find that what's going on here is even at a higher standard than is required. I mean sometimes you think oh well, these guys are breaking new ground and it's not perfect yet and all those sorts of things. But you have to realize that right now the financial community is dealing with essentially no good information on human capital at all. So any information you can give them, any glimmer of why an organization is strong or weak from a human capital perspective is going to be helpful to them. So investors care very much about the fact that they know that GE has good leadership development programs and that weighs into their valuation of the company. They don't know a whole lot about it. It's only one aspect of it, but it's way better than nothing. I heard another story about in a merger case the company mentioned by the way, we are laying off a bunch of middle managers. But don't worry, we're not gutting the strength of the firm because if you'll notice our span of control numbers are going from being very narrow to being more like the industry norm. And you can imagine a requisite organization person giving that explanation in a much more sophisticated way. But fundamentally here was a very simple number span of control. It's just one thing but again, the investment analysts really jumped on that because they said, this helps us understand an organizational issue that we had no understanding of before, no metrics on before. So anything you can do that provides insight into how healthy the firm is to use, for lack of a better word, or how requisite the firm is in a way that is explained such that the finance people can understand it, they could understand span of control in that context. They could understand what leadership development is. There are various other things they could understand. Some organizations, for example, may talk about their capability for innovation, exxon talks about their capability for execution. And so these are cultural issues as well. And so the investment community can understand those things, can look at evidence for those human capital things, and that's going to have an impact. So I think the work the Ro people are doing, obviously, that provides fans may talk about for the investment community, it's about their capability, be encouraged that people at the highest levels are indeed showing interest in this, including accounting.