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

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Here is an overview of key conclusions from this EEA YouTube Purpose Leader and Stakeholder Management show with Kristof Gleich, President and Chief Investment Officer of Harbor Capital Advisors, with four ETFs (exchange traded funds) based on the Irrational Capital Human Capital Index, and Dave Bookbinder, Executive Director, Valuation Services, at Haefele Flanagan, an accounting and valuations firm. Bookbinder is author of two books on human capital and valuations, including: The New ROI—Return on Individuals.

• 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.

• We remain in the contradictory situation in which everyone agrees people are our No. 1 asset and yet they are not broken out as such 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.

• It will be possible for the valuations field to more effectively account for human capital if there is an accepted audit or benchmark (equivalent to bond ratings) of people practices that can be used to account for the impact on an organization’s cost of capital and therefore company valuation.

• A test is under way for developing such a means of independently rating the effectiveness of human capital management.

• Key factors in identifying human capital alpha, among many others, are quality of front line management; alignment on purpose, goals, and objectives; a culture of innovation, communications, and above all trust.

The show also demonstrates that while progress is being made in linking human capital to financial performance, we are in the early phases of formalizing an implementation framework as is common in total quality management in manufacturing and logistics. It takes a system.