Accounting for Human Capital
I've been reading a great deal about financial accounting and reporting recently, in no small part because of a class that I've been taking on the subject.
Those who have read the book Beyond HR know that Boudreau and Ramstad compare accounting to human resources by emphasising accounting's transition from a profession oriented toward processing transactions, to a decision science called finance. They suggest that HR is bound to face a similar transition. Thus, a comparison between the accounting and HR shouldn't seem at all original.
However, I'm coming to believe that Beyond HR misses some of the most critical and telling points of comparison between the disciplines. Not only that, but the book encourages readers to pursue strategic HCM and analytics before our organizations are really ready.
First of all, professional accounting and financial reporting practices are universally organized around a number of principles (think GAAP and FASB). One in particular states that, to be useful, all financial information should share the following qualitative characteristics:
- Relevant - useful in making decisions
- Predictive value
- Feedback value
- Timely
- Reliable
- Verifiable - can be verified independently
- Representative of reality
- Neutral (unbiased)
- Comparable (across companies)
- Consistent (over time)
It strikes me that the accounting profession has traditionally and continues to place such great emphasis on the quality of information as a prerequisite to reporting, while HR appears over-eager to jump headlong into analytics without the data they rely on meeting any of the above criteria.
Certainly, we have a long way to go before we can actually account for human capital in a way that allows us to add such assets to a balance sheet in a manner that lends itself to comparability and consistency.
However, and this is a huge HOWEVER, HR needs to start looking more carefully at the relevancy and reliability of its talent data now. Very few companies implement talent management technologies and programs with this in mind - a fatal flaw in my humble opinion.
Along those lines, another accounting principle addressing "cost benefit" holds that the benefits to users of financial information should outweigh the costs of providing it.
If the business, and not HR, are considered primary users of human capital information (they should be), then I'd say this is one more area where HR has yet to match the practices of its nerdy cousin profession. And if getting HR right must precede an HR decision science, then I'd say we've got a long way to go.
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