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human capital key to sustainability
Alison Kahler
The Financial Review
Banking and Finance 24/08/2005
Listed companies that treat their employees poorly will be sold from the portfolios of a major fund manager as part of a new strategy to boost the returns its products generate for investors.
Melbourne-based Portfolio Partners has issued a survey to the 200 biggest companies on the Australian Stock Exchange asking how each uses its "human capital" in a bid to measure the sustainability of company earnings. It is not based on a moral belief that companies should be kind to workers but instead on the premise that happy employees drive the market returns of a business higher.
"A Watson Wyatt human capital study of 51 North American and European organisations in 2002 showed that companies with high scores had average five-year returns of 64 per cent, compared with 39 per cent and 21.5 per cent for those with medium and low scores, respectively," Portfolio Partners managing director Craig Bingham said.
Portfolio Partners attempted the same survey last year but had insufficient replies to make general statements about how Australian companies rated when it when came to use of human capital. But its strategy is part of a broader movement to question all aspects of a business that might affect its profit.
Superannuation funds such as the $3.3 billion VicSuper scheme are monitoring the carbon emissions of big business because penalties for excess pollution are likely to hurt the profits of the world's biggest companies as global governments change environmental policies
Mr Bingham said this year's human capital survey, and future questionnaires, would be applied to the fund manager's five major equity funds in due course and that companies with low scores could be sold off.
Financial analysis was a lagging indicator of company performance and other measures were risk-management tools that helped fund managers gauge whether a business might do poorly in the future.
"Three things that are coming out of overseas research are that a company can minimise risk to its profits, gain advantage over its competitors and guarantee its long-term survival and growth by focusing on people and culture," Mr Bingham said. "It's logical, really."
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