The People Resource in Valuation of Stocks (Part 1)
The Human Resources Development function is less widely appreciated than the glamorous world of marketing. Investors, who are concerned with stocks, often deal with executives from the finance function. However, skilled and experienced professionals from the ‘back-rooms’ of Human Resources may be the real forces of change in improving organizational effectiveness.
Few companies remain in the pure realm of tangible products; elements of service have become essential means of durable competition. People are now considered to be discrete elements of the Services Marketing Mix. Recruitment and training, which rarely occupy any space when stocks are discussed, have new importance when fresh investment decisions have to be taken. A recent television interview with the founder of India’s premier and path-breaking airline Jet Airways, focused entirely on how this canny entrepreneur had managed to find a sufficient number of pilots to keep his aircraft in the skies. Mr. Goyal smiled craftily as he observed how he had foreseen the crunch of too few certified pilots, and that he paid ‘top dollar’ to keep this critical resource from leaving his employment. Stocks rise faster than schools can churn out fresh batches of people trained in various fields, so the best management teams think years ahead to keep their staff treasuries full to the brims.
Finding Stocks with Values from Human Resources
The wage bill, as reported in statutory financial disclosures, hides more than it reveals: blue and white collars are mixed up; head-counts may say nothing about declines in standards, and who knows if training budgets are adequate? 50% of the people employed by Hindustan Level Limited, a stock market leader in India from the sector of fast moving consumer goods, and with top brands of toothpaste, were tea plantation workers, at the start of this millennium!
Transnational corporations, with head quarters in the developed world, and with global operations spanning all cultures, have emerged as dominant forces in the free economy. Hindustan Lever Limited is a part of Unilever, and used its international vision, to hive off the tea plantation business. The example proves that holding stocks of professionally run global companies is a reliable safeguard for small guys being lumped with ownerships of companies full of unproductive human resources. This is not to say that stocks of domestic companies should be shunned, for the Aditya Birla Group, rated as India’s best employer, is fully indigenous.
Executives are not normally shy about their accomplishments, though they may often be reticent about weaknesses, (at least the competition is listening, no doubt!) Buy stocks of companies with gregarious accounts of how they keep their employees up to speed, and beware of ones that gloss over this emerging aspect, or change the subject when you ask about human resources management!