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EEA YouTube Show: Finding Performance Alpha Through Human Capital

The president of a leading financial services firm and a business valuation expert together discuss the growing body of evidence that highly engaged stakeholders create enhance value that can someday even be accounted for on balance sheets.

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About Harbor Capital and Haefele Flanagan 
Other Insights

Here is an overview of key conclusions from the recent EEA YouTube show now available on YouTube: Searching for Alpha Through Effective People Management

  • Evidence is growing that higher levels of employee engagement can have a positive impact on share prices so that savvy investors today can begin to add human capital factors into investment strategies seeking superior long-term performance.
  • Yet, today, we remain in the contradictory situation in which everyone agrees people are our No. 1 asset but are not broken out on balance sheets under current accounting practices, making it impossible for valuation experts to effectively account for the benefits of having more highly engaged stakeholders.  
  • The growing ability to account for human capital may create a new approach to private equity in which firms seek companies in good markets with competitive products and services but with low levels of employee and customer engagement. 
These are just a few of the insights and stories in this Enterprise Engagement Alliance YouTube with  Kristof Gleich, President and Chief Investment Officer and Dave Bookbinder, Executive Director, Valuation Services, at Haefele Flanagan. See below for more insights. 

About Harbor Capital and Haefele Flanagan

Harbor Capital is a 35-year-old Chicago-based investment firm that markets several ETFs (exchange-traded funds) focused on human capital. For these funds Harbor Capital has embraced the methodology of Irrational Capital, a Pennsylvania investment research firm. Irrational’s mission is to use “workplace behavioral science, financial acumen, and deep data science to capture the powerful connection between human capital and stock performance. By understanding company culture and intrinsic employee motivation, we are able to transform these insights into high-returning investment strategies for our partners.”
The human capital funds include: HAPY, Harbor Human Capital Factor Unconstrained ETF; HAPI, Harbor Human Capital Factor US Large Cap ETF; HAPS, Harbor Human Capital Factor US Small Cap ETF, INNO, Harbor Disruptive Innovation ETF.

Gleich says the performance of the Harbor Capital Advisors, Inc. group of ETFs (Exchange Traded Funds) based on the Human Capital Factor of Irrational Capital Inc., so far is demonstrating that high levels of employee engagement can have an impact on share prices. According to Lucy Brewster of, the Harbor Capital Advisors, Inc. US Large Cap ETF (ticker: HAPI) rose 12.3% in the first quarter of 2024, beating the S&P 500’s 11% gains. HAPI's 30% increase in 2023 also surpassed the index, which rose 26%.
Harbor Capital’s human capital funds are based on Irrational Capital’s analysis framework that takes into account what the company calls “The Human Capital Factor...which strives to deeply understand company culture and intrinsic employee motivation as a potential driver of stock performance...The index underlying HAPY takes a socially conscious approach that aims to access the potential alpha opportunity of strong corporate culture. The Human Capital Factor is grounded in a robust, nonreplicable dataset of both public and proprietary sources, covering 2,200+ public firms, 10 million plus employee responses totaling 500 million plus data points.” Notably, the metrics do not include price-earnings ratios or similar financial indices. 
Haefele Flanagan, founded in 1967 and based in New Jersey, is an accounting firm with a corporate valuations department. Bookbinder, Executive Director of Valuation Services, has authored two books on the impact of people on business performance: The New ROI: Return on Individuals, and The New ROI: Going Behind the Numbers. He will discuss why he has helped lead the quest to take human capital factors more seriously in the world of human capital valuations, the factors standing in the way, and possible paths for progress.

Other Key Insights

Kristof Gleich

  • Ultimately, every organization is a collective of different individuals. The value of a business is based on unlocking the energy of those individuals and essentially transferring it into a connected energy to fulfill the purpose, goals and objectives of the organization.
  • To gain an edge in the market, you need to find an anomaly, a factor or edge, which, if leveraged, leads to superior results, a conclusion that led to the development of this investing approach three years ago. “This is really the intersection of the explosion of data that we’ve seen over the last 15 years and also the development of behavioral economics and science and our understanding of corporate culture and motivation.” 
  • “One person's accounting anomaly is another person's excess returns.” 
  • Instead of looking at P/E ratios, our analysts look at factors with a direct impact on engagement, including the quality of front-line managers; alignment of stakeholders toward a clear purpose, goals, and objectives, a culture of innovation, strong communication, and trust. 
  • With 750 million kinds of unique data points combined, the process usd to analyze companies with the Human Capital Factor process "can be likened to an MRI scan for a company culture with a lot of texture and nuance." 
  • A method of objectively rating organizations on engagement as is done in the bond market is under beta testing by Irrational Capital. 

Dave Bookbinder

  • “The first thing we need to do for businesses to really think about people is to make people a line item on the balance sheet...Earlier in my career the assembled workforce was identified as an intangible asset that had its own line item on the balance sheet, but that changed and now it's just consumed into goodwill.” 
  • “The second thing is we’re not recording the value of the workforce, only of an acquired company. So, if you've got a company that has 1,000 employees, if there is no acquisition, there is no accounting for the workforce.” And, in the case of an acquisition, only the acquired employees are valued. 
  • And, in the case of an acquisition when the workforce is valued, it’s based on the cost of replacement with no factor given to the level of engagement. "This is one reason why so many mergers and acquisitions fail." 
  • In valuing a business, it’s essentially taking the value of its future economic benefits brought back to today’s cost of capital, and research I’ve done indicates that companies that are doing it right enjoy a lower cost of capital. "The lower the cost of capital, the higher the valuation. But there remains no accepted method for accounting for a human capital alpha in valuation practices." 
  • The solution could be a discount or premium to apply based on some kind of independent rating similar to what is used in the bond market.  “We know that there is some correlation between performance around human capital and a lower cost of capital.” 
  • There is a need for an objective rating system for employee engagement just like in the bond market to help analysts better account for the engagement factor.
Note that a webinar attendee referred reviewers to a report and book published in 2001 based on the Watson Wyatt Human Capital Index: The Human Capital Edge: 21 People Management Practices Your Company Must Implement (Or Avoid) to Maximize Shareholder Value.

ESM Is Published by The EEA: Your Source for Effective Stakeholder Management, Engagement, and Reporting

Through education, media, business development, advisory services, and outreach, the Enterprise Engagement Alliance supports professionals, educators, organizations, asset managers, investors, and engagement solution providers seeking a competitive advantage by profiting from a strategic and systematic approach to stakeholder engagement across the enterprise. Click here for details on all EEA and ESM media services.

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Stakeholder Management Business Plans Human Capital Management, Metrics, and Corporate Sustainability Reporting for organizations, including ISO human capital certifications, and services for solution providers.

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The EEA promotes a strategic approach to people management and total rewards through its e-newsletters, web sites, and social media reaching 20,000 professionals a month and through other activities, such as:


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