The cost of people.

Some years ago, whilst a bright eyed trainee auditor, I recall some lively debate at “audit school” regarding the items that could and couldn’t go on a Balance Sheet. In particular the discussion was fairly heated around the concept of goodwill and intangible assets. 

Now, years later, battle scarred in the fields of both Internal Audit and HR, if I have learned anything at all, it is the significant impact both positive and negative that people have on results. Aside from the very great advantages that enormous sums of money can buy, the one real differentiating factor in organisations, large and small is the knowledge, skills and experience, the very great talent that people bring. To quote the often over quoted “People really are our greatest asset”, but they really are.

Interesting then isn’t it that whilst we have gone some way to resolving the question of Goodwill on the balance sheet, there is still no meaningful way of accounting for the value added to an organisation’s capability by its people, or indeed the damage that they inflict through negative behaviours. The debate about intangible assets has variously been off and on the agenda.

The Combined Code requires Directors and Senior Managers to have in place a clear system for the identification, assessment and reporting on the various risks that impact the achievement of the objectives of the business, and to comment on the adequacy of the internal control mechanisms that they have in place to address these risks. In all the years since CoSo, Turnbull and statements on internal control, have we really got our heads around the real impact of people?

I’m willing to bet not. I can imagine the risk registers now in my minds eye, “Loss of key personnel” stated and some bland statement about HR Planning, Recruitment strategy, possibly mentions Reward Strategy and Talent Management framework.

Having been there – lost some key personnel I mean, I can say with certainty that it was incredibly painful, and it wasn’t just the cost of the recruitment bill;

• Ever increasing overtime bill
• Domino effect of people leaving
• Impact on service users, complaints
• Impact on remaining staff resources stretched to breaking point and on morale
• The services that got cut to deliver the essential stuff
• The staff relations that went downward

The costs to the organisation over a year were immense, but we didn’t put a price tag on all of this. So now, in the aftermath of the recession, we’re beginning to see a response both from business and Government on how to prevent anything so awful happening again, including the publication of the latest Governance Code. Although well meant, the responses so far are limited to process and procedure, no one yet has tackled the bad behaviour, the strange behaviour of target chasing that brought so many financial businesses and countless others to the brink.

There has been much comment on the likely impact of making the UK financial industry too regulated and “constrained”, a brain drain of the best talent to more friendly shores. We clearly understand the real value of our people, especially the benefits they bring when they’re engaged and working for our best interest, we also understand in our gut, if not in numbers the unthinkable impact when they leave us. So surely now is the right time to design a more meaningful grasp on measuring the real value of people to our business capability?

Jane Pound MCIPD, MIIA

The views expressed in this article are solely those of the author and do not necessarily represent those of the IIA or CIPD.