HUMAN CAPITAL AS AN ASSET: Seven guiding principles to shift how PAGE 16 AN ACCOUNTING FRAMEWORK FOR THE NEW WORLD OF WORK human capital is valued GUIDING PRINCIPLES TO SHIFT HOW HUMAN CAPITAL IS VALUED From the workforce as an expense to the From backward-looking financial measures to workforce as an asset forward-looking, broader measures of value Most countries provide favourable accounting treatment for reductions in the The performance of organizations is traditionally measured through backward-looking workforce by allowing such costs to be considered a one-time, “below-the-line” cost financial metrics quarter over quarter. along with other restructuring costs and excluded from core earnings. At the same time, all workforce development costs are required to be expensed when incurred, This principle has been the focus of much research and discussion. The IBC ESG resulting in a direct hit to earnings with no recognition of the value provided. paper details the case for such broader measures to assess value creation in a forward-looking manner. We define some additional measures in the framework This results in a set of perverse incentives whereby management is motivated to reduce below. In order to drive a constant focus on the workforce, such measures should be investment in the workforce while being encouraged to treat talent as disposable. defined and reported consistently. Past efforts to encourage the adoption of such We propose reversing this situation by treating investment in human capital in the measures have often been stymied by concerns about protecting competitive same way we do investment in natural resources, particularly oil. Similar to PV-10, advantage. We believe the measures proposed here provide context and an accounting method for estimating the value of a company’s future oil and gas comparability without being too specific about the strategic value behind workforce 17 reserves , the investment in the workforce could be capitalized and recognized on the initiatives – striking the balance between useful disclosure and divulging competitive balance sheet, as illustrated below in the Total workforce value section. advantage.