Entries in human capital (4)


Measuring the risk of slavery in today's economy

A new report from the risk management firm Verisk Maplecroft issues a stark warning to businesses -- and consumers -- across the globe: slavery is rife in nearly 60% of countries around the world.

This report garnered substantial media attention this week for its assertion that nearly 46 million people worldwide are living as slaves, and that this problem is not limited countries with underdeveloped markets and struggling legal systems.

Further, while precise estimates of the number of slaves differ, there is broad agreement that there are more slaves today than any time in human history. In fact, according to a 2012 article in the Atlantic, over the entire 350 years of the African slave trade, a total of 13.5 million were taken from Africa to be slaves; that's less than one-third of the current number.

While the report notes that most multinational companies have robust systems in place to guard against slavery among their top suppliers, there is more risk further down the value chain. Some other key findings include:

  • With the exception of the US and EU, the world’s top 12 garment exporters, including China (ranked 23rd highest risk), India (15th) and Pakistan (9th) are rated ‘high’ or ‘extreme risk’
  • Over 80% of sub-Saharan African countries feature in the two highest risk categories, including Kenya and Nigeria, two of the region’s three largest economies 

Groups that we are particularly interested in, such as small farm operations, are not immune -- cocoa producers are also considered to have a heightened risk, for instance. An economic system built on mutually beneficial relationships has no place for slavery, so this is a risk that should be closely watched.


Image source: Verisk Maplesoft

-- Jay Jakub


Sustainability and performance -- data challenges conventional wisdom

A paper written by a team of professors from the Harvard Business School and the London Business School argues that companies can institute high social and environmental standards without sacrificing shareholder value. In fact they go further than this, stating that "high sustainability" companies achieve greater returns for their shareholders, suggesting that this is a long-term competitive advantage.

We provide evidence that High Sustainability companies significantly outperform their counterparts over the long-term, both in terms of stock market as well as accounting performance"

Adopting high sustainability standards has implications for corporate operations and governance. The researchers found that the boards of directors of these companies are more likely to be formally responsible for sustainability and top executive compensation incentives are more likely to be a function of sustainability metrics.

Looking at the cumulative stock market performance of a portfolio of high sustainability companies compared to the performance of a control group portfolio of "low sustainability" companies, the researchers found that the high sustainability group "significantly outperform" the others. Further, the data suggests that high sustainability companies in the consumer-facing business sectors benefit relatively more than those in the B2B sectors.

The paper explores possible explanations for this result. They suggest that while companies adopting high sustainability standards are more constrained in their actions, they may outperform the control group because they are able to :

  1. Attract better human capital
  2. Establish more reliable value chains
  3. Avoid certain costly conflicts and controversies
  4. Be at the forefront of product and process innovations that align with high social and environmental standards

This work looks at important issues associated with our exploration of the Economics of Mutuality, and suggests many interesting areas for further exploration.

-- Clara Shen


Deloitte on realigning performance management

A new report from Deloitte highlights the strength of the trend away from traditional performance management systems -- some 89% of companies surveyed have recently changed their process or plan to change it within 18 months.  What's driving this movement?

Interestingly, it's often the desire to align the processes used to manage a company's human capital with its business strategy and culture. Traditional performance management systems do not address some of the biggest challenges companies face today, including employee engagement, retention, and capability development, and in many cases they were making things worse.

Deloitte has recently revamped it's own approach, as detailed in an HBR article this month. The new approach separates compensation decisions from day-to-day performance management, produces better insight through quarterly or per-project “performance snapshots,” and relies on weekly check-ins with managers to keep performance on course.

Image source: Deloitte

-- Segundo Saenz


Technology, time horizons, and global growth

A recent article by Gillian Tett in the Financial Times profiles the contrarian views of a UK fiscal policymaker  regarding innovation, technology and growth. Contrary to the conventional wisdom, that is, as captured by McKinsey and others that promote unfettered innovation as the ultimate solution to the challenges facing worldwide economic expansion.

Andrew Haldane, chief economist for the Bank of England, sees things differently. In a speech entitled "Growing Fast and Slow," Haldane examines the past 250+ years and concludes that innovation is only part of the reason for the rapid growth the globe has experienced in that time. There are additional factors that are critical: rising levels of human capital (educated people), social capital (trust), and a shift in cultural attitudes towards the future (from a focus on short-term gains to planning for the long term).

Further, while innovation can enable greater growth, Haldane worries about the current direction that digital technologies are taking us. He warns that the digital revolution is increasing income inequality, and may be reducing our time horizons--making us less capable of the patience required to make the investments needed to achieve sustainable long-term growth.

Fast thought could make for slow growth."

--Andrew Haldane

Haldane ends his speech with a warning about the cross-winds associated with increasing innovation on the one hand and decreasing social development on the other. If we are not careful, global growth could end up "suspended between the mundane and the miraculous."

We appreciate an analysis that accounts for human capital, social capital, and considers the merits of a long-term perspective. What do you think about Mr. Haldane's observations?

-- Clara Shen