Investors and employees’ priorities generally could not be further apart when it comes to investment decisions. The recent increased focus of institutional investors on human capital management (HCM) in listed companies has emerged as a key exception to this – where it picks up on key aspects of professional human resources work in the sense of stakeholder management. As well as fostering strong human resources work in German companies, shining a light on relevant key figures and best practice also plays a role in facilitating German co-determination. hkp.com talks to Tanja Jacquemin, policy specialist/lecturer for supervisory board members and corporate co-determination and Rainer Gröbel, director the Academy of Labour and former head of HR at IG Metall.
Ms. Jacquemin, Mr. Gröbel, it seems that investors are more focused than ever on the concerns of employees, and they appear to be taking these into account in their investments. Do you feel you achieved your goals as an employee representative body?
Tanja Jacquemin: The current investor focus on human capital management is indeed attributing a significance to the situation and interests of employees that hasn't yet been seen in this context. But even if we want to see the positive implications for our work, we shouldn’t be deceived by the specific motives of investors.
What points of criticism do you have?
Rainer Gröbel: It’s not a criticism, more of a critical assessment: institutional investors have discovered that sustainable companies are more successful in the long run, and they are looking at human capital management from the perspective of sustainable profit maximization alongside risk minimization. While we welcome this, it’s not a case of starry-eyed idealism.
Tanja Jacquemin: Here we're experiencing development similar to that seen on environmental issues – specifically fossil and/or nuclear energy sources, where investors are exerting pressure on the corporate world based on comparable motivations.
… and successfully!
Tanja Jacquemin: Undoubtedly. What politics has failed to set in motion with its compromises, investors have succeeded in achieving by exerting economic pressure to this effect.
You know German co-determination better than any other employee representative body. Is this change in investor behavior anything new?
Rainer Gröbel: Over the years, investors have increasingly been bringing up ESG issues with supervisory boards and the chairs of committees connected to this and their deputies. Now the focus has switched to HCM. So the subject isn’t completely new. However, it has grown significantly in relevance thanks to the ongoing revision of the guidelines on sustainability reporting at European level. I see employees on supervisory boards as having a clear responsibility here, particularly when it comes to issues of social sustainability. They are the experts, especially when it comes to employee concerns. But, as of yet, we can only guess what other opportunities this increased focus on HCM has to offer.
Tanja Jacquemin: Here we’re seeing a real need to play catch up when it comes to informing and, above all, including the relevant groups, especially given the challenges, but also the many opportunities this poses for both companies and employee representative bodies.
What challenges and/or opportunities do you see?
Tanja Jacquemin: Let’s start with the challenges. Few of even the leading listed companies in Germany can provide human capital key figures at the drop of a hat. Only once a supervisory board chair approaches HR with requests for information on this subject for the next investor meeting does the scrambling begin. With institutional investors’ fundamental demands for human capital management now on the table, this must and will change radically – with the proviso that a new standard be applied in the quality of information and communication...
… and ultimately the reporting to go with it.
Tanja Jacquemin: You’ve touched on a sore point there. At the moment we’re seeing the emergence of very disparate and almost arbitrary reporting practices when it comes to issues of human capital management. Since the necessary standards are not in place, companies are reporting in different formats – think management, HR, and sustainability reports – and therefore at varying times and on a varying scale. Companies only publish what they are proud of. Anything that isn’t working or happening, isn’t mentioned. That may change from year to year, and the bases for assessment don’t have to be identical. To sum up, in current HCM reporting there is a lack of transparency, consistency and comparability.
Back to the opportunities of the new investor-led focus on HCM. What opportunities do you see for employee representative bodies?
Rainer Gröbel: The necessary transformation process will see HR management grow into a new role and acquire a new self-understanding. HR will interact more closely with the executive board, but also with the supervisory board which, for its part, can take more informed action. Employee representative bodies can feature more prominently as a mouthpiece for employees in this context. They know the concerns of the workforce and they have a good overview of the critical issues – but they also know where things are progressing well. They can play a crucial role in enabling the company to present itself as socially sustainable.
Is there any current information relating to HR matters that might be of urgent relevant to investors?
Tanja Jacquemin: This varies significantly from one company to another. But in large, listed companies in particular there is often a lack of information with regard to how many employees there are on an employee representative body, the levels at which these exist, what proportion of employees are represented on works councils in other countries or subsidiaries, etc.
Why would this information be important to investors?
Rainer Gröbel: That’s quite simple. Where representatives of employee interests feature prominently, employee standards are generally high and the corresponding risks addressed by investors low, e.g. occupational health and safety, discrimination of any form, social security, etc.
Mr. Gröbel, Ms. Jacquemin, thanks for taking the time to talk to us!
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