Kuldip Maity

As I start to write about the importance of human capital in any business, the obvious discussion that crops up in my mind is the present conflict between human performers and AI-empowered machines. How much human intervention can we replace with artificial intelligence? While I plan to write on this some other time, let me share an experience here.

At a conference, a nationally respected doctor was once asked if AI will take over jobs from medical professionals. In reply, the doctor had asked the person if he will agree to fly in an aircraft with no pilot, flown only by machines. He said that in the future doctors who understand AI will have no issue, while he prayed for those who ignored the technological advancements.

We do not know where the future will take us, but as we stand now, human capital is one of the most important elements of any business. Depending on the nature of the business it would hover between the top three elements that create value and contributes to the financial well-being, growth, and sustainability of the company.

How an organization manages its leadership, organizational culture, and values, and looks after its human resources are parameters that contribute to the growth of the company, directly translating to its financial health. Training and skill development of the employees are also equally important for productivity and innovation driving long-term success. For any investor, these aspects should contribute to decision-making.

The challenge that we have today is how intangible KPIs (key performance indicators) translate to tangible evaluation criteria. It is more so because every business has its nature and the need for human contribution. It is different for a technology-driven operation from that which needs a more human touch. Many have come up with various definitions like voluntary or involuntary attrition rates, training spends, skill, experience, type mapping, productivity measurement, and several other measures, but in my view, they will all be important in different proportions in different organizations. Till now, it is left to the judgment of the investor to make an apple-to-apple comparison when choosing between two investment opportunities in different industries.

Though a lot of work is being done in this field, my personal view is that it will remain difficult to relate human capital affects an organization's financial performance.

We all know it; the issue is how to show it!

When I look up the definitions of “Capital” in Google, varied results come up on websites.

One site says the capital of a business is the money it has available to fund its day-to-day operations and to bankroll its expansion for the future, while another defines it as anything that a business or business owner can use to generate more value.

The obvious question that arises is the reason that causes such huge variation in the definition. For me, it is due to change in the outlook of businesses. As the industry finds more and more entrants without a business background setting up their businesses, we are witnessing new and fresh visions coming both at the level of individual businesses and also the community as a whole. Even the government and other regulatory bodies are acknowledging this change and actively looking at revising their reporting frameworks.

As in my past blogs, I have been mentioning that the outlook of business investors has transformed from generating mere profit to intangible parameters of much higher impact, the same has also happened for capital. Contrary to our traditional belief that funds put into businesses are used to generate profit, the recent trends of the industry also acknowledge other factors for the same goal and much beyond.

While we still will have the financial capital types like debt, equity, working and trading capital, for maintaining our books, the changing times also force us to look at parameters such as intellectual, human, natural, manufactured, social, and stakeholder relationships as the capital of a business that helps generate value.

Such a change in perspective brings in a more forward-looking outlook in the mind of investors since it is time that we accept that the real value that a business generates is much beyond mere profiteering.

In my opinion, the change is helping improve the quality of information to the investors and promote a collaborative and cohesive approach to business operations. The approach is more long-term and creates accountability across the organization, rather than keeping it focused only at the executive level. It also gives importance to the factors beyond the immediate organization and brings in the aspect of relationships with other business entities and also indirect stakeholders.

This, in long term, will help support integrated thinking, decision-making, and processes that are more oriented toward the creation of value. Profit is an organic outcome if we can do all these right.

Continuing my blogs on ESG, in this one I want to focus on the G, which stands for Governance.

The governance structure of an organization determines how well it is run and directly reflects on its sustainability. Needless to say that investors are attracted more towards organizations with good governance practices, as such companies are more stable and have mitigated the risks that can have surprise and severe impacts.

When we talk about governance, there are a few distinct areas that we need to focus on. At the top of the list come the corporate governance structure, which is determined by the structure of the board, and the transparency with which it is formed. Factors like corporate disclosures, executive compensation, protection of the minority shareholders, conflict of interest disclosure and resolution, etc. are extremely important for the corporate.

The next would be the codes of business conduct and the risks they pose if breached. We have witnessed a lot of horror stories in the recent past, where organizations have suffered not only on the financial front but also had to take a hit on their reputation owing to shaky policies around business ethics. Nowadays, compliance practices are given a lot of importance by investors to avoid such risks.

Several other aspects constitute the governance framework of a corporate. Be it the supply chain of the business, the tax strategies, or stakeholder engagement policies, governance does not necessarily mean that the corporate is performing to the best of its capabilities. It just ensures that the different aspects of business are documented, transparent, and monitored, implying that deviations will be promptly captured and corrected before they go out of control.

Though for the common people, the G is not as attractive as the E and S of ESG, understanding it is extremely critical, as governance risks and opportunities will likely increase as social, political, and cultural outlooks continue to evolve. A company scoring high on all three fronts will be regarded much higher than one which has a weak pillar.

Summing up this series of blogs on ESG, I would like to mention that irrespective of the scores and impacts on investor outlook, if the ESG strategy is followed in true spirit by any company, it can serve as a strong differentiator, building trust with stakeholders, protecting the organization’s reputation and increasing consumer engagement. ESG will help in the long-term growth of the company with a positive impact on society.

A win-win for all.

Wishing everyone a very happy year ahead.

As I sit to write my first blog of the year, I can’t help but feel grateful for the year that went by. To me, it was one of the best years that we have spent. I write this because when we were just happy to have survived the pandemic over a couple of years, 2022 helped us leave the negativity behind and make a fresh start in a new and changing world.

No, I am not overlooking the fact that we have witnessed the start of a war that has divided the world, there have been uprisings in countries and some have seen regimes change, world leaders have passed away, and many such negative incidents. The economic situation the world is going through also remains our biggest concern.

But surely the gloom that had engulfed us has cleared away in 2022.

I hope that 2023 will take the baton from 2022 in the same spirit and bring about magical changes in our lives. It should not be a mere coincidence that the digits of the year add up to the magical number 7. Coincidentally or otherwise, this number has had several implications in our lives. The seven days of the week; the seven notes of the Sargam; the seven colors of the rainbow; the seven wonders of the world, the seven holes of our skull, there are many other significances of the number that touches us regularly.

In the same spirit may the year also help us look forward to favorable changes that will not only take us forward but also revive us from the downturn. Though there are a few lingering concerns about the outbreak of a new variant, I am confident that collectively we are geared to ensure that the spread is arrested.

On the work front at VFS Capital, I am very excited to get into 2023, as we have major plans, involving growing the initiatives that are already in motion and launching a few innovative programs as accelerators.

Summing up, I wish you all to have magical successes in your life and workplace and hope that you bring in transformations to scale new heights.