Here’s a pop quiz: Where does human capital appear on the balance sheet? Go on, take your time. I’ll wait.
The unfortunate reality is that human capital does not appear on the balance sheet. It appears in your profit and loss statement, and at best, it shows up as an expense line represented as a sum of your compensation and benefit costs plus the costs of your training programs. However, seasoned board members and business leaders know that human capital is indeed an asset — accounting standards notwithstanding.
If you dig a bit deeper, 90% of the valuation of S&P 500 companies is attributable to intangible assets, which cover intellectual capital, brand and social capital, and indeed human capital. Yet boards don’t spend nearly enough time focusing on their most important asset — their people.
As stewards of their companies, boards have a critical role in monitoring, protecting and enhancing the value of human capital. The challenge lies not just in recognizing this responsibility but also in developing the capabilities to execute it effectively.
The conversation around human capital governance has evolved dramatically over the past decade. Where boards once viewed human resources as a cost center focused primarily on compliance and administrative functions, forward-thinking organizations now recognize people as their primary source of competitive advantage and value creation.
The World Economic Forum, in collaboration with WTW, published research demonstrating how organizations can reshape human capital accounting to monitor and assess the return on investments in employees — in the same way they measure returns on financial and intellectual capital. This represents a fundamental shift from viewing human capital as an expense to treating it as a strategic asset requiring active governance and optimization.
The evolution is particularly relevant in today’s business environment. Digital transformation, changing workforce expectations, the rise of remote work and the increasing importance of ESG factors have all elevated the strategic importance of human capital. Companies that excel in areas such as employee engagement, diversity and inclusion, skills development and organizational agility consistently outperform their peers in both financial and nonfinancial metrics.
Yet despite this clear evidence, many boards continue to operate with outdated governance models that treat human capital as secondary to financial and operational oversight. The gap between recognition and action represents one of the most significant opportunities for board effectiveness in the modern era.
The transition from past to future requires boards to move beyond traditional metrics such as head count and compensation ratios toward more sophisticated measures that capture the true value and potential of their human assets (Figure 1). This includes understanding employee engagement scores, retention rates of high performers, internal mobility and development success rates, and the correlation between people investments and business outcomes.
| From | To | ||
|---|---|---|---|
| 1 | Profit Value for a narrow group of stakeholders |
→ | Purpose Shared value between the workforce and a broad group of stakeholders |
| 2 | Corporate policy Complying with code of conduct in the workplace |
→ | Social responsibility Living corporate values in the community |
| 3 | Stand-alone The organization as a stand-alone entity |
→ | Ecosystem The organization as an integral part of the communities in which it operates |
| 4 | Employees and jobs Process-centric: matching people to fixed roles |
→ | People, work and skills Human-centric: Empowering talent to focus on meaningful, non-routine work |
| 5 | Workforce as an expense Treating talent as a disposable business expense |
→ | Workforce as an asset Valuing talent as an asset |
| 6 | Backward-looking financial metrics Focusing on past financial performance |
→ | Forward-looking value metrics Focusing on future potential for value creation |
| 7 | Quarterly Short-term view |
→ | Generational Time agnostic |
WTW’s research into board practices reveals striking patterns about where directors currently spend their time versus where they believe they should focus their attention. The findings paint a clear picture of misaligned priorities that urgently need addressing.
According to WTW research, boards report spending disproportionate time on compliance-related activities and financial oversight while acknowledging they dedicate insufficient attention to strategic people matters. When asked where they would like to reallocate their time, progressive board members around the world consistently identified core human capital aspects as top priorities: succession planning, talent management, organizational development, culture transformation, and employee morale and wellbeing.
This desire for rebalancing reflects a growing recognition among sophisticated directors that their role extends far beyond traditional fiduciary duties. Progressive boards increasingly see themselves as custodians of corporate culture, responsible for appointing the right leaders in the right jobs, driving the right behaviors through incentives and key performance indicators, and actively monitoring real-time employee experience and wellbeing. The business case for this shift is compelling. A recent WTW study demonstrated very strong correlation and causality between leading wellbeing indicators and company financial performance, including revenue growth, profitability and market valuation.
Furthermore, the research reveals that boards with stronger human capital governance capabilities are better positioned to navigate disruption, drive transformation initiatives and maintain organizational resilience during challenging periods. These boards don’t just react to people-related crises; they proactively shape organizational capabilities to create sustainable competitive advantages. While some North American and European boards show increasing sophistication in this area, there is still room for capability development.
In WTW’s recent survey of European boards, directors highlighted that not enough time was being spent in boardrooms on human capital governance — in particular, leadership succession and development, organizational purpose, employee experience and culture.
As jobs change for a changing world, directors need to keep ahead, update their game, continue learning, and remain open and adaptable. The current capability gap in human capital governance threatens to undermine companies’ competitive position at precisely the moment when people-centered leadership matters most.
The assessment results reflect broader patterns observed across markets where traditional governance models emphasize financial and operational oversight while treating human capital as a secondary consideration. However, directors need to up their game and treat human capital governance as a specialist skill requiring dedicated development, ongoing education and active practice. This isn’t about adding another checklist item to board responsibilities; it’s about fundamentally reimagining how boards approach their oversight role in a people-centric business environment.
This challenge extends beyond just the remuneration committee and nominations committee. Having adequate human capital expertise enhances the quality of discussions across all board committees, improves implementation considerations and accelerates the pace of change by putting people at the heart of critical decision-making processes. Indeed, very deliberately, progressive boards around the world are renaming their remuneration committees to “People and Culture Committees,” “Organization Development and Compensation Committees,” or “People and Sustainability Committees.”
This nomenclature change isn’t cosmetic; it reflects a fundamental shift in how these committees approach their responsibilities. Rather than focusing narrowly on compensation benchmarking and compliance, these evolved committees take holistic responsibility for organizational health, culture development and strategic workforce planning.
We have long espoused that the role of any board falls into three broad buckets: ensuring regulatory conformance, helping management drive performance, and helping future-proof the company. WTW research suggests that companies are spending far too much time on compliance aspects and not enough on performance excellence and meaningful transformation.
This imbalance has significant implications for board composition and capability requirements. While traditional board skills in accounting, legal and financial oversight remain important, they are insufficient for addressing the challenges of modern business leadership. The emphasis on conformance over performance reflects outdated governance models that prioritize risk avoidance over value creation.
Future-focused boards require a different skill set that goes beyond traditional disciplines and emphasizes the importance of cognitive diversity. This includes board composition that covers directors with specialist transformation, organizational development and human capital governance expertise. The most effective boards combine traditional governance capabilities with deep understanding of organizational psychology, change management, talent development and cultural transformation.
The shift from conformance to performance requires boards to become more comfortable with ambiguity, more willing to engage in strategic conversations and more proactive in shaping organizational capabilities rather than simply monitoring outcomes. This is particularly relevant for human capital governance, where many of the most important factors — culture, engagement, leadership pipeline strength — are difficult to quantify but critical for long-term success.
WTW research identifies several key characteristics of high-performing boards with strong human capital governance.
| Wellbeing summary score | Financial impact | |||
|---|---|---|---|---|
| Financial outcomes | Low | High | Amount change | Percentage change |
| Revenue per employee (Productivity) |
$400k | $500k | ▲$100k | ▲ 25% |
| Market value to book value (Tobin's Q) |
2.0 | 2.5 | ▲ 0.5 | ▲ 25% |
| Return on equity (Net income to shareholder equity) |
12.5% | 17.0% | ▲ 4.5% | ▲ 36% |
| Return on assets (Net income to total assets) |
4.2% | 5.0% | ▲ 0.8% | ▲ 19% |
| U.S. healthcare cost trend (Healthcare cost trend after plan changes) |
7.3% | 51.% | ▼ 2.2% | ▼ -30% |
Just because somebody has a bank account, you don’t trust them to be a private banker. Just because somebody uses computers, you don’t ask them to develop your AI strategy (although, ironically, AI could do that). So why does this logic not apply to human capital?
In boards of the future, we need multidisciplinary and cross-functional skills, of which human capital governance needs to be seen as a core competency. This requires directors with deep understanding of organizational transformation, the psychology of persuasion, and enhancing employee wellbeing and productivity.
The professionalization of human capital governance demands the same rigor and expertise that boards apply to financial oversight, risk management and strategic planning. This means moving beyond intuition and personal experience toward evidence-based approaches grounded in organizational science, behavioral economics and data analytics.
Progressive boards are already making this transition. They recruit directors with backgrounds in organizational psychology, change management and talent development. They invest in ongoing education for existing directors to build human capital literacy. They establish regular touchpoints with employees beyond traditional surveys. They use sophisticated analytics to understand the drivers of organizational performance and the return on people investments.
The business case for this evolution is overwhelming. Organizations with sophisticated human capital governance consistently outperform their peers in innovation, agility, resilience and financial returns. They attract better talent, maintain higher engagement levels and navigate disruption more effectively.
For boards around the world, the opportunity is significant. By leading the region in human capital governance sophistication, local companies can differentiate themselves in global talent markets, improve their attractiveness to international investors and strengthen their competitive position across multiple dimensions.
The development pathway requires both individual and systemic changes. Individual directors need to invest in building human capital literacy through education, exposure to best practices and regular engagement with organizational development professionals. At the system level, boards need to reimagine their composition, processes and focus areas to reflect the central importance of people in modern business success.
The transformation also requires boards to become more comfortable with different types of data and different modes of decision-making. While financial metrics provide clear quantitative frameworks, human capital governance often requires interpretation of qualitative insights, assessment of cultural dynamics and evaluation of long-term capability development. This demands both analytical sophistication and emotional intelligence from board members.
The implications for boardrooms are profound. To remain competitive in attracting international business and maintaining their reputation for governance excellence, local boards must accelerate their development of human capital capabilities. This requires both individual director skill development and systematic changes to board composition, committee structures and governance processes.
As we look toward the future of corporate governance, it’s clear that boards without strong human capital capabilities will struggle to fulfill their fiduciary duties effectively. The interconnection between people, performance and value creation is too strong to ignore, and the competitive advantages of human capital excellence are too significant to leave to chance.
In an era where talent drives transformation, culture shapes competitive advantage, and employee experience determines customer experience, boards that fail to master human capital governance will find themselves governing organizations that struggle to create sustainable value.
The path forward for boards is clear: Treat human capital governance as the specialist discipline it deserves to be, invest in building the necessary capabilities and position themselves at the forefront of this critical evolution in corporate governance. The companies that get this right will be the ones that thrive in the decades ahead.
This article draws on research from WTW and World Economic Forum-WTW collaboration. A version of this article first appeared in the Q4 2025 Bulletin of the Singapore Institute of Directors.
