Some thoughts on improving human capital

It's good to see that organizations of all sizes are having problems coping with tight budgets, skills shortages, morale issues and the like. This report from the US Government Accountability Office discusses these, plus others, and makes some very astute recommendations. Although many might point out that the large sizes of the organizations involved would make a difference, I would say the issues are the same, and arise in organizations of all sizes:

• the fragmented way in which personnel policies and initiatives are informed and executed in ways that are not aligned with overall strategy;
• the inadequate use of enterprise solutions to address shared challenges; and
• the need for more agile talent management.

There are some great ideas that can be taken from what is discussed here.

The Ontario election - what happened in 2011

The big day is tomorrow. Let's consider what went down the last time around. Being of an analytical frame of mind, I am naturally interested  in how the numbers played out.

I came across a rather interesting spreadsheet a while back from a British source, which allocates vote splits in a multi-party setting from one election to the next. When applied to the 2011 election, this is basically what happened:


The big winner then was the NDP, gaining by six points with about equal shares of the swing coming from the Liberals and the Greens.The Tories also gained as well with a gain of almost four points, with a similar pickup from Greens and Grits. That is what created the Liberal minority we have been going through these last three years.

How will the current situation translate into votes and seats? I will publish a similar analysis for Thursday's result, once all the votes are in.

Everything you know is wrong

April was a good month for the accounting profession here in Ontario, from my point of view. Us CMAs became entitled to be called Chartered Professional Accountants together with our fellow CAs. If the vote with our fellow CGAs goes according to plan, our CGA colleagues will be on board next month as well. We will all be entitled to call ourselves CPAs. Or will we?

The structure is certainly intricate. CMAs have, and CGAs will, become associate members of the Institute of Chartered Accountants of Ontario, which has also adopted the business name "Chartered Professional Accountants of Ontario". The ICAO has jealously guarded the CPA designation since their great merger with the Certified Public Accountants Association of Ontario back in 1962. The CPAAO had its own separate governing Act:



They chose to keep that enabling legislation separate, instead of amalgamating the two organizations, by declaring the members of each body to also become members of the other. The Institute still continues to issue regulations specifying the circumstances in which such initials may be displayed, including CPA designations obtained in other jurisdictions.

However, they forgot to get their lawyers to keep tab as to what had been happening over the years. Back in 1990, when the Province issued the Revised Statutes of Ontario, 1990, the final volume contained various schedules detailing repeals, disposition, and the status of various unconsolidated provisions. The last one, Schedule C, is unique, in that it had never been attempted before. Within that Schedule, The Certified Public Accountants Act, R.S.O. 1937, c. 236, was noted as still being in force:




That would have important consequences in 2006. In that year, the Legislation Act, 2006, was enacted by the Legislative Assembly as Schedule F to the Access to Justice Act, 2006:

The crucial provision to note in that schedule was s. 98(3), which declared:

"Every Act listed in Schedule C (Table of Unconsolidated and Unrepealed Acts) to the Revised Statutes of Ontario, 1990, as set out in volume 12 of the Revised Statutes of Ontario, 1990, other than the Acts listed in Column 1 of the Table to this section, is repealed if it has not previously been repealed."

The attached Table did not include the 1937 Act. It was deemed to be repealed on on 25 July 2007. The Province used to have a table online to show that, but it has since been removed

This effectively means that "Certified Public Accountant", and, more importantly, "CPA", were no longer protected professional designations under Ontario law.

 In 2010, when the legislation relating to all three professional accounting bodies in Ontario was updated, the Chartered Accountants Act, 2010 came into force, including s. 27, which specified the prohibitions on what designations or related abbreviations were not allowed to non-members of the ICAO.

But does this reinstate the prohibition on using "CPA", or more importantly, "Chartered Professional Accountant"? I think not, as our CGA brethren found out last year when going to the Ontario Superior Court of Justice to attempt to prohibit "CGMA" from being used:



The key paragraphs from this judgment:

[40] The letter “M” in CGMA would, in my view, qualify as an abbreviation. This is because M is the short form for the word Management. The definition of “combination” suggests each of the objects of the prohibition and “other words and abbreviations” are unified, unbreakable elements. Consequently, CGA is an element and the abbreviation “M” is an element. Thus, the following combinations of these two elements are, in my view, prohibited: “MCGA”, “CGAM”, “C.G.A.M.”, and “M.C.G.A.”.

 [41] CGMA is not clearly prohibited because the meaning of “combination” does not imply the “M” element can be inserted into the middle of the “CGA” element.

That makes ICAO's position for "CPA" somewhat awkward, to say the least. Could it be argued that inserting "Professional" in the middle of "Chartered Accountant" is of nil effect as well?

I note that "CPA" and "Chartered Professional Accountant" have been registered as official marks under federal trademark legislation, so the Institute is not without some protection. However, the whole issue will need to be addressed, once the consolidating legislation makes its way through the Legislature after next week's election.

All the factors you need to know

I'm halfway through reading 1914-1918, a very fascinating history about the First World War, and also the first time I have ever read a comprehensive account about the efforts and issues facing each country on both sides. It's also much more complicated than we were ever led to believe in school or in the media.

In what can be fairly described as the first "total war", the factors that had to be considered by everyone involved included:

• aims
• doctrine
• planning
• alliances
• politics
• diplomacy
• strategy
• tactics
• operations
• environment (ie, topography, weather and time of day)
• manpower
• matériel
• technology
• production
• logistics
• intelligence
• morale
• propaganda
• financing
• funding

I'm sure I've captured everything, and it was crucial that in a total effort such as this, all had to be taken into account and properly executed in order to assure victory. The fact that there were so many failures along the way helps to make this book an excellent text for assessing why. It also gives you pause to think how this can be applied to other ventures that are of less than life-and-death importance.

How to solve the "Canadian Productivity Puzzle"

Consider this. Canada has a very attractive investment climate:

• the cost of capital is quite low
• inflation is also at low levels
• even at current exchange rates, the Canadian dollar is still at a much stronger level than a decade before, thus making imports of needed capital goods so much cheaper
• the current Conservative government has worked to decrease levels of corporate taxation
• depreciation allowances on new equipment are among the most generous in the world
• incentives for spending on research and development are also attractive
• free trade agreements are in place with many of our large trading partners, and more are in the pipeline

But why is our productivity lagging?

• it has hardly changed at all from the early 1970s
•  there is strong evidence that Canadian businesses do not adopt best business practices with the enthusiasm shown by their foreign counterparts
• even when they do invest, they do not even get 80% of the consequential rise in productivity that similar US firms achieve

There are various reasons for why this is happening, as noted in a 2010 report from TD Bank:

•  many Canadian industries are shielded from the effects of competition that outsiders face
• there is a reluctance to invest in levels of education demanded of employees by their foreign counterparts
• there is similar reluctance to select available talent brought in by recent immigrants
• incentives appear to be concentrated on the type of inputs, as opposed to desired outcomes (the Small Business Deduction is a good example of this, as it discourages business from expanding to a more desirable size to take advantage of economies of scale)
• there is little effort to develop and protect intellectual property rights that may arise from R&D that has been undertaken
• we must not ignore the excessively risk-averse attitudes Canadian business leaders have historically exhibited

When expressed like this, the solutions would appear to be obvious, but the last factor (in my personal experience) is the most destructive. I have helped to turn several enterprises around through improving how they achieved things, only to see such improvements reversed through subsequent changes in management that wanted to return things to circumstances they were more comfortable with (usually to disastrous results). Nevertheless, the outcomes that are necessary for Canadian business to thrive must still be actively sought, and such efforts are, to not surprise, easy to achieve. As always, I am ready to help.

Jim Flaherty, the man that saved the world

At first glance, the title appears to be somewhat over the top, but consider the reaction when Jim Flaherty's death was announced yesterday:

• proceedings immediately halted in both houses of the Parliament of Canada,
• politicians on all sides welled up in tears, paying tribute to him,
• a meeting of the G20 finance ministers and central bank governors was suspended, in order for all present to publicly pay their respects,
• among comments internationally was the observation that his views were always actively sought in world meetings!

Now that is high praise.Although a social conservative, he was also a master of political economy. He helped Canada to avoid the massive aftershocks of 2008's Great Recession, raised consumer confidence, and brought about some compassion as well, by:

• making massive investments in infrastructure, ,as well as shoring up GM's and Chrysler's Canadian operations (through huge bumps in deficit spending),
• eliminating the hollowing-out of tax revenues through the abuse of income trusts,
• implementing a two-point reduction in the GST,
• tightening borrowing requirements for household mortgages,
• selecting, in a brilliant move, Mark Carney to head the Bank of Canada (which later led to his being poached by the Bank of England),
• giving investors greater flexibility through the introduction of Tax-Free Savings Accounts, and
• introducing the Registered Disability Savings Plan for helping the more vulnerable members of society.

 As a result, Canada has weathered the last few years relatively better than most other countries, and Ottawa is one year away from returning to balanced budgets.

There are missed opportunities to note:

• his initiative to introduce a national securities regulator was shot down for constitutional reasons, but he still kept working on setting up an alternative that would work (for which we should stayed tuned),
• the recession resulted in a massive hollowing-out of Canada's manufacturing capacity and an over-dependence on resource industries, which is not a long-term recipe for economic stability (but that is a failure of corporate Canada, and not of government policy),

But I digress. He will be truly missed.

The proper way to report headcount

It never ceases to amaze me how a simple operation like reporting how many people work for you can be so routinely manipulated:

• if a layoff occurs on the last day of a reporting period, many managers will disclaim responsibility for the people who actually worked during the period, saying that their effective headcount is the people who remain.
• other managers may farm out significant roles to agency workers or outside consultants, and not report such activity.
• others who are on leave of absence are ignored until their return to work.
• conversely, there are other managers who report the positions they are responsible for, whether or not they are actually filled, and whether or not one person is filling more than one position!

These areas (among others) contribute to unreliability in reporting and unpredictability in forecasting future needs. I would like to summarize some current best practice (of which a more precise summary is given here), in the hope that it will help to improve what has been a rather messy situation.

What to report?

Managers must be held responsible for all activity that arises from the areas under their control, and there are several critical areas that need to be covered:

• staff who are on payroll (segregated into full-time, temporary/casual, and part-time)
• non-staff payroll (segregated into contingent labour and consultants)
• actual vs full-time equivalent (FTE) headcount
• internships
• workers on paid leave
• workers on unpaid leave
• workers who are on short-term or long-term disability, who are expected to return to work
• sickness and absence costs
• hours worked
• overtime hours
• vacancies at the end of the reporting period
• training costs

This is a much broader definition than what is given by Statistics Canada for its reporting, but it more properly reflects reality.

Definition of "headcount" - payroll employees

Segregate between:

• Permanent employees: those with contracts without expiry dates or on fixed-term contracts lasting more than 12 months
• Temporary/casual: those, excluding agency workers, with fixed-term contracts of 12 months or less, or are employed on a casual basis
• Part-time: those who work less than an organization's normal weekly hours

Include:

• Agency workers, when paid directly from payroll
• Those temporarily absent but still on the payroll (ie, on maternity leave)
• Seconded employees, where the organization is paying 50% or more of the related payroll cost
• Workers who only work part of the year, where they are being paid at the reporting date
• All those on paid leave

Exclude:

• Agency and other workers not paid directly from the payroll
• Seconded employees, where the organization is paying less than half the related payroll cost
• Self-employed workers
• Voluntary workers
• Former employees only receiving a pension
• Directors who do not receive a salary
• Workers who only work part of the year, where they are not being paid at the reporting date
• All those on career breaks
• All those on unpaid leave

Definition of "headcount" - non-payroll workforce

Segregate between:

• Contingent labour: workers engaged to cover business-as-usual or service delivery activities within an organization (whether agency workers, interim managers or more comprehensive outsourcing arrangements)
• Consultants: those providing management with objective advice relating to strategy, structure, management or operations of an organization, in pursuit of its purposes and objectives.

Counting workers

Headcount relates to the number of workers paid by or for the organization.

While all reporting must include continuity schedules that detail all activity affecting headcounts from opening to closing amounts (ie, hires, exits, going to and returning from leave, and so on), this must be compared to the full-time equivalents for the work actually performed during the reporting period. There are certain critical points to consider:

• Exclude overtime hours from FTE calculations
• Include the contracted working hours for each employee that worked during the reporting period, whether working, temporarily absent or on paid leave during that time
• Divide by the standard working hours of the organization

For the non-payroll workforce, hours must be gathered for all activity worked , in order to perform similar calculations. The related agreements and invoices rendered must note this information.

Other areas to consider

There are other areas that may be required, or may otherwise prove useful for reporting or forecasting purposes:

• diversity of the workforce
• workforce by age
• workforce by seniority

Method of reporting

The type of reporting really needs to be configured to the needs of the organization, but the above data must all be presented in it in a logical way. I prefer continuity schedules to prove movements from beginning to end, and from one bucket to another (ie, change of status from one category to another, going to and returning from paid or unpaid leave). Care is required in designing these reports, or the presentation of the data may otherwise prove cumbersome and difficult to understand. Many examples can be found in web searches, especially in the education sector.