Donald H Taylor

I admire Clive Shepherd’s blog, but his recent swipe at the phrase ‘people are our most important asset’ is wide of the mark. I started writing a comment in response, but then realised that it was turning into an article.

You see, people generally are an organisation’s most important asset, it’s just you can’t say so.

Here’s why….

Clive says that people are important to their employers, but not as important as other key assets, for example:

1. the brand/reputation (Nike, Gucci, etc.);
2. fixed assets (property developers, landlords);
3. rights to natural resources (oil companies, etc.);
4. money (banks, etc.);
5. algorithms (Google, etc.);
6. secret recipes (KFC, Coke, etc.);
7. systems and processes (widespread);
8. its customer base/membership (MySpace)
9. patents (pharmaceutical companies, Blackboard - I wish).

He adds:

Now, clearly if any of these organisations was to lose all its employees at once, it would be in a hell of a mess; but without their most valuable asset they’d be worthless.

Wrong.

For a few of these organisations this is true, but certainly not all of them. Yes, for those with large physical assets (property, oil, money) people may not be their greatest asset, but for Nike? Lose the brand, you lose some income. Lose the people, you have no income at all.

But Clive may not have meant exactly this. He may, legitimately, mean that on Nike’s books, the intangible value attached to its brand exceeds the cost of its personnel. That’s true, but the cost of personnel is not the same as their value. While there is no agreed monetary measure for this, there are plenty of different ways of accounting for Human Capital (I count four: Accounting, Operational, Academic and Policy measures).

Furthermore, while Nike has a brand value, that value does not - unlike physical assets - exist independent of Nike’s employees. Intangible assets are usually divided into three types (see Sveiby and Stewart for more on this):

• Human Capital
• Social Capital / Customer Capital
• Organisational Capital/ Structural Capital

These, in addition to an organisation’s physical assets, make up its value. Since the mid eighties the quoted values of listed companies have substanially exceeded their book value (that is, the sum of their physical and financial assets), and the gap between the two is increasing, thanks to the increasing value of these companies’ intangible assets.

How valuable are these intangible assets without the human capital to put them to work?

In some cases, the assets have a re-sale value. They are transferable. This is true of most patents. It is also true, to an extent, of secret recipes (but one should not disregard the know-how required to extract best value from these recipes). What about systems and processes? Opinion is split on this, but there is certainly a very strong case to be made that without an organisation’s Human Capital such Organisational Capital is useless (see Gratton and Ghoshalsee).

In other words, I don’t believe this claim that while people are important, they are not as important as other assets. It may be true for a few organisations holding massive physical assets but it cannot be true for organisations such as software houses which have huge value within their people and very little elsewhere. And in intermediate cases, I do not believe there is a strong case for assuming that other assets maintain their value without the employees to put them to work.

Clive’s case has at least two things going for it, though. It is logical, and it is clearly stated.

The same cannot be said for most other arguments against “our people are our greatest asset”. Let’s look at three.

The most common argument against the phrase runs like this:

1) Executives say ‘people are our greatest asset’.
2) Hypocritically, they do not treat people as if this is true.
3) Therefore the phrase itself is wrong.

The self-confident nonsense of step 3) is dizzying.

Spelt out like this, it’s clear that the fault lies with the bosses for trying to hoodwink their employees, but cloud it with a few fine words and the logic is lost. Human Resources Magazine provides a good example, though, of how easy people find it to shoot the messenger.

A second argument is a truism dressed up as wisdom: “ah yes, people may be our greatest asset, but the wrong person can also be our greatest liability’. Yes – and? That’s about as smart as saying “Yes, you can have a bank account, but as well as being in credit, you can also have an overdraft.” Gosh. I’ll put my euros under the mattress then.

The third argument against ‘people are our greatest asset’ hinges on the use of the word ‘asset’, and with this I have some sympathy, on each of its levels. On the emotional level, nobody likes to be thought of as an asset, an object of production, owned by the organisation to be deployed or discarded as the market or whim dictates.

There’s not much you can say to this – expect that words are less important than deeds. If a CEO uses this phrase publicly, and backs it up with action, then the use of the word ‘asset’ will be forgiven (remembering of course that this is not just about being nice to people).

On the strictly rational level, ‘asset’ should not be used this way. People aren’t assets. They are not owned by their employer and this is the gist of Donald Clark’s comment on Clive’s posting. People can walk off the job; they can stay and remain unengaged. Anna Farmery expresses this well, and suggests the alternative phrase: people are our competitive advantage. Unfortunately, this doesn’t work for the not-for profit sector. Who are they competing with?

So, are people still are our greatest asset? Not for all organisations, no, and they are not strictly assets, and when not support by action, the phrase is worse than useless, but yes, in most organisations in developed economies, even if people’s value cannot be expressed financially, it can be measured, and it is crucial to the organisation’s function.

Does that mean we can use the phrase now?

Sadly, no.

The truth is that while essential true, this clichéd sentence has been so abused that it has lost all credibility. It has almost become a lightening rod for revolt against management hypocrisy. Look at the disdain these diverse people heap on it: Wendy Lynch (human capital researcher), Lee Hopkins (communications guru), Troy Brumley (technologist), Simon Barnes (professional speaker) and David Copperfield (British policeman - although not perhaps his real name).

Experience has taught us not to believe it - including my own.

I once worked for a company with a mission statement that began People are our most important asset… and then completely failed to live up to it. The result: a cancerous lack of trust of senior management. When things went wrong (and of course they did) there was no reserve of trust for the management to fall back on, and the company failed. By then, like many others, I had already left.

So we need a better way to say it. A way that does not fall foul of the arguments above. For the accountants, it should include the sense of an asset, without the negative connotations. For everyone else, it should be positive about the contribution people make, while also making it clear that they are not shackled to the organisation.

Here is my suggestion:

We value our people. Our value comes from them. 

What’s yours?