Executive Briefing

HR info missing from annual reports; creative CEOs need subordinates’ support; security important for company meetings; more.

Mar 1, 2006
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HR Magazine, March 2006 Annual Reports Lack HR Info

Although large U.S. companies spend about 36 percent of their revenue on HR, most annual reports fail to mention HR operations and how they contribute to the bottom line.

Results of a two-year analysis of the 100 largest publicly traded U.S. companies by Mercer Human Resource Consulting show that only 20 percent of these companies discuss HR in their reports to shareholders. About one-quarter provide only limited references to the workforce, and some don’t mention their employees at all.

“Imagine a company spending one-third of its revenue on a capital investment or an interest payment and never addressing it with shareholders in their annual report,” says Mercer human capital strategy consultant Rick Guzzo, who helped conduct the research. “It’s unthinkable.”

The study also found that companies that do report on human capital tend to focus on simple payroll or wage statistics. (The Securities and Exchange Commission requires only that they report the number of employees.) About one-quarter of the companies analyzed offer little more than platitudes—“Our people are our greatest asset.” And even when employees are discussed, researchers found, annual reports rarely provide hard facts about how the companies’ HR practices drive business results.

“Organizations do have the capabilities—sophisticated tools and information databases—to gain insights into the workforce and how it can best be managed for business success,” says Guzzo. He predicts that the demand for human capital reporting will rise in coming years. “Investors let companies off the hook in the past,” he says, “but I don’t think they’ll settle for the ‘sound of silence’ much longer.”

C-Suite Says The Glass Is Half FullGraph 2

C-suite executives have their worries, but they are an optimistic bunch overall.

First, the worries: Competition is the greatest threat to company success, said 72 percent of senior executives in North America, Europe and Asia polled recently by the global management consulting firm Accenture.

Most also worry about the health of the global economy, the inability to attract and retain the best talent, and the company’s reputation. (See “Top 10 Perceived Threats to Company Success,” below.)

Nevertheless, three-quarters of the executives surveyed expect their companies and industries to grow in 2006, and 78 percent of companies will be hiring in the next six months—either to fill crucial positions as they become vacant or to recruit new employees. Nearly half of the companies expect to increase spending this year.

Interestingly, chief operating officers and HR directors are more optimistic about the growth of their organizations than are other senior executives. Nearly 80 percent of these executives predicted business growth in 2006.

Geographically, executives in China are the most optimistic in the world; nearly all (98 percent) expect their industry to grow this year.

“The perception among C-suite executives that the global economy is getting stronger should be a hopeful indicator for global business,” according to Mark Foster, chief executive of Accenture’s Products operating group. “As optimism for the global economic climate improves,” says Foster, “top executives are more apt to focus on improving their own businesses by spending for programs that might have been curtailed or postponed and by hiring new employees to carry out their growth plans.”

Creative CEOs Often Lack Organizational Skills

Does your CEO require a lot of support from subordinates? Maybe that’s because the chief is highly creative.

According to a study that analyzes the behavioral profiles of more than 240 presidents, CEOs and chief operating officers, high creativity—which includes innovativeness and risk-taking—was found to be the work style behavior that most distinguishes these C-suite executives.

“CEOs also tend to score well above average in their ability to advocate and sell ideas and in tough-mindedness,” says Wayne Nemeroff, CEO of the human capital assessment firm PsyMax Solutions, which conducted the study.

However, these creative CEOs lag way behind the norm in one way, says Nemeroff. “According to our findings, company heads are decidedly less organized than their subordinates. While CEOs may excel at addressing issues in an innovative, resourceful and imaginative way, they probably need a lot of support from others on their team to execute what needs to be done.”

Fortunately for these CEOs, managers a level below the top may be more collaborative or orderly, Nemeroff says. “The wise CEO would be sure to be surrounded by people with such essential work style behaviors and skills.”

Consider Extreme Opinions In Decision-Making

What’s the best way to ensure that a corporate committee will reach a fair and equitable decision when members of the group may be biased? Intuition may tell you that throwing out extreme opinions will neutralize the group’s most severe biases and lead to better decisions. However, new research suggests that may not be the case.

Empirical data on the impact of biases in group decision-making in a corporate setting is scarce. But Eric Zitzewitz, assistant professor of strategic management at Stanford Graduate

School of Business, found strong parallels for business when he examined data on figure skating judges in the 2002 Olympics. That year, a scandal involving vote trading among the judges marred the Olympics. Eventually, two gold medals were awarded and an international debate arose about the judges involved.

Zitzewitz says Olympic figure skating judges had been known to be nationalistically biased long before the 2002 Games. “Nationalistic bias, vote trading and Cold War-style bloc judging was much more common in figure skating than people realized,” he says.

While it may sound like a good idea to throw out the extreme scores when judges are biased, says Zitzewitz, it actually makes things worse because it throws out valuable information as well. Using techniques developed to study stock analyst forecasts, Zitzewitz found that extreme opinions have information, noise and bias in the same proportions as the less extreme opinions.

Zitzewitz believes biased decision-makers should not be asked to recuse themselves. Instead, extreme opinions should be respected and given special consideration, and members should be selective about giving them.

An important difference between sports judging and business decision-making is that most companies prefer to reach consensus and resort to formal voting only when opinions become deadlocked. Voting should be a last resort, he says.

Company Meetings May Require More Security

It’s no surprise that security firms have been doing a thriving business in the wake of Sept. 11. However, corporate security concerns aren’t limited to travel in political hot spots. Sometimes, trouble can be found closer to home.

William McGuire, president and CEO of Global Security Associates LLC, reports an instance in which a corporate board meeting became so contentious that “one guy launched himself across the boardroom table and stabbed a colleague.”

Shareholder meetings also can put company executives at risk of attacks from unhappy shareholders, says McGuire. Although he hasn’t run into a situation that involved a direct attack on executives at one of these meetings, he does recall a book signing event at which a member of the public attempted to stab an executive who was signing his new book.

McGuire, whose firm provides security for an increasing number of shareholder meetings, says 99 percent of the threats sent to corporate executives who attend these meetings are idle. “They are usually written or verbal. But we are looking for the needle in the haystack, that other 1 percent” that may escalate into a physical confrontation.

In addition to providing bodyguards for specific events, security firms like McGuire’s conduct risk assessments that may include cyber surveillance in addition to other methods of intelligence and research gathering, he says. One of his clients, who was in the medical field, “was targeted by an animal rights group which posted the CEO’s address and personal information about the family, including where the children went to school,” he says.

Although McGuire says the spike in the security business following Sept. 11 has leveled off, he warns that the situation can change at any moment. A case in point: “I can assure you that Ford Motor Co. executives are at heightened risk since the recent announcement of job cuts.”

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