Guest Opinion: It's the CEO Stupid!

ISO 10018 Quality People Management standards and Enterprise Engagement not only provide a path to more sustainable performance, but a better society as well. 
 

• What’s Wrong?
• Human Capital As an Asset Rather Than a Cost 
• Standards Can Do for People What ISO 9001 Did for Quality

As we look back over our long careers and the many great companies we have worked for, the single most important ingredient for success in almost every case was a CEO who fully believed in the importance of all stakeholders—not just shareholders, but customers, employees, distribution partners, vendors and communities. A new generation of CEOs guided by a fundamental respect for the value of people and the same simple straightforward principles that addressed our nation's quality problems in the 1990s will not only create better organizations but also a better society, without the need for more government regulation if our nation’s CEOs wake up in time. 

 

The data indicate that over 60% of people are disengaged in their work. Up to three-quarters of employees experience Sunday night blues, a Monster survey found, and the general satisfaction of consumers with American products remains stuck at about 75%, where it was in 1994. With most people devoting over half of their lives to work, is it any wonder that this general dissatisfaction could help explain why only 33% of Americans are satisfied with “things in America,” according to a recent Gallup tracking survey, despite record-high employment?

[return to top]
 

What’s wrong with this picture? It’s the CEO, stupid! For whatever reason, most CEOs don’t value people as a capital asset. Despite overwhelming evidence that human capital—not just employees but customers, vendors, distribution partners and communities—are an organization’s most important asset, human capital is not accounted for on balance sheets and there are no disclosure requirements for human capital management practices by the Securities & Exchange Commission as there are for research and development. Organizations spend tens of billions of dollars annually on customer and employee engagement schemes, and there’s little evidence that any of these programs produce sustainable results. 

 

According to another Gallup survey, only 22% of employees believe their organization’s CEO has a vision for the organization, and 60% don’t know what their organization stands for. A recent study by Temkin Group found that only 40% of companies have any kind of human capital plan, and only about 20% meet that company’s definition of a “mature” approach.

 

Investors are already aware of the problem: Two-thirds of investors don’t believe the current “leadership stock” is fit for the future, according to a recent Korn Ferry survey. Respondents complained that “a majority of leaders can’t make decisions and take smart actions quickly enough, motivate effectively or build trust, all of which is needed to ensure an organization’s survival into the future.” In 2017, Larry Fink, CEO of BlackRock, which manages close to $10 trillion in assets, made news when he wrote that “in order to fully reap the benefits of a changing economy and sustain growth over the long-term, businesses will need to increase the earnings potential of the workers who drive returns, helping the employee who once operated a machine learn to program it.”

[return to top]
 

To change the attitude of CEOs, investors have their work cut out for them. A Korn Ferry study in 2016 found that 67% of CEOs believed that in five years technology will provide greater value than people, and 44% said that that technology could make people “largely” irrelevant in the future of work. In that survey, people and customers didn’t even make the list of what these CEOs considered to be their organization’s most valuable assets. Boards are equally at fault. A 2013 survey by The Miles Group and the Rock Center for Corporate Governance at Stanford University found that “talent development and workplace issues play a very insignificant part in the performance evaluation and bonus calculations for CEOs, suggesting that boards do not place the same weight on human capital as they do on other strategic and financial objectives.” 

 

Fortunately, the pressure is mounting on CEOs and boards to change their ways. CalPERs, the largest U.S. pension fund, and many other companies have petitioned the SEC to require new disclosures by public companies on human capital investments and strategies. They wrote: “Enhanced human capital disclosures are…critical to an investor’s ability to promote governance, transparency and board accountability in the effective management of human capital. Research shows there is a correlation between investing in people—their compensation, training, health and safety—and shareholder return.” Richard A. Bennett, CEO and President, and Nell Minow, Vice Chair, of Value Edge Advisors, wrote, “Accounting principles no longer reflect true organizational assets. The inability of an organization to provide key human capital data is, in and of itself, a red flag.” Even SEC Chairman Jay Clayton recently told an investor committee that human capital should now be considered an asset as opposed to a cost. 

 

A recent study finds that 71% of active individual investors are interested in companies focused on people and sustainability. A JUST Company Exchange Traded Fund of companies addressing issues of most concern to people raised a near record $215 billion on its first day of trading.

 

A vibrant industry of engagement surveys, employee and customer engagement agencies, motivational speakers, leadership coaching, training, rewards and recognition, technology, analytics companies and leadership books exist to help CEOs engage people. Clearly something is not working. 

 

[return to top]
 

ISO, the International Organization for Standardization, believes it has the answer. The organization’s well-known ISO 9001 Quality Management standards helped transform quality management in the 1990s, and ISO believes the same strategic and systematic approach can fix the people issue if the CEO assumes leadership. Over the last six years, ISO has published a dozen standards that provide a clear framework to help organizations significantly improve efficiency and stakeholder experience through a CEO-led strategic and systematic approach to engaging all stakeholders. In 2015, ISO issued new Annex SL requirements applicable to 60 standards that now require CEOs at about 2 million ISO-certified companies to create and annually disclose a formal people management strategy. ISO recently issued the ISO 30414 guidelines for Human Capital Reporting for those organizations seeking a standardized way to audit and disclose information material to their stakeholders.

 

Many Americans don’t recall that in the 1970s and 80s the reputation of American-made cars and other products had fallen to dismal lows, while the Japanese roared ahead using quality management principles to create highly desirable cars, audio and other products that Americans craved. U.S. businesses rose to the challenge and, guided by ISO standards, applied that same systematic approach to manufacturing. America’s quality crisis is now a distant memory.  

 

The same CEO-led approach to human capital can do the same for American business, not only creating new wealth for investors and society, but offering a better experience for employees, customers, communities and all stakeholders. The only resource we lack are CEOs and boards willing to lead the way.