Andrew Packman: ‘Our Least Important Asset’ by Peter Cappeli

Peter Cappelli is the George W Taylor Professor of Management at the Wharton School of the University of Pennsylvania and has written extensively on the management of employees. In this book he identifies what he regards as a decline in the quality of management, particularly by large organisations of their people. Elements of this include a failure to train existing staff, to undertake effective succession planning and a generally lower priority given to the recruitment and development of employees.

Few would argue with the importance of managing people well or challenge the difficulties of doing so effectively and consistently. Cappelli attributes a marked decline in the quality of people management to both the mechanics of and the importance attributed to financial accounting. While his analysis is flawed, his suggestions for reform have merit. He suggests disclosure of the staff turnover rate and of the amount spent on training. Additional disclosure requirements, given the current length of annual reports, need careful consideration, but a business which is reliant on a highly skilled workforce should be focused on those metrics. Investors can reasonably be expected to find that information helpful.

Brief interesting suggestions at the end of the book cannot disguise the fact that the overall analysis is flawed, both in the detail of accounting and in the impact it has in a business. The author’s argument is that financial accounting drives business decisions, and as it fails to reflect the value of people, those decisions too often fail to consider the impact on employees. His concerns are not without some basis. Recruitment and training costs are current expenses and not spread over the life of the employment, while the costs of a tangible asset are spread over its life. Staff generally do not meet the accounting definition of an asset so that costs, which may have a benefit over a longer period, are expensed as they are incurred.

However, Cappelli both misunderstands the detail of accounting and exaggerates the impact of financial accounting on decision making. He demonstrates his grasp of accounting by commenting that, ‘liabilities are arguably worse than expenses on a balance sheet in that they continue into the future’. He rightly recognises the importance of post-retirement benefits, and the shift from defined benefit to defined contribution schemes. However, rather than considering the impact of increasing longevity and changes in discount rates, among other factors, he blames the accounting, ‘Moving from defined benefit plans to defined contribution plans … immediately make(s) a company appear more valuable because liabilities of future obligations (sic) go away’. To state the obvious, a change in prospective pension arrangements has no impact on an existing liability. Perhaps most frustratingly, while recognising that, particularly in the US with very limited notice periods, labour costs are not a fixed cost, he repeatedly complains that they are treated as if they were. The repeated misunderstanding of accounting is frustrating. What is worse is that it leads to a muddled and simplistic analysis of changes in the way that people are hired and managed.

Building on his flawed understanding of accounting, Cappelli assumes that financial accounting drives decision making. There is no recognition of the way that businesses, while taking the accounting impact into account, evaluate a range of issues in making a decision. In particular, Cappelli argues that there has been an unnecessary focus on reducing labour costs. None of ‘offshoring’, ‘China’ nor ‘productivity’ appear in the index. To write about the US labour market without recognising the impact of the rapid growth of the availability of lower cost labour in Asia is a surprising oversight. The reality is not that US companies have simplistically been driven by accounting to reduce labour costs, but rather that they have been responding to fundamental changes in the global economy. Sadly, this book is overly simplistic and adds little to the debate on the way that the labour market has changed.

Perhaps the most disappointing element of this book is the tone of regret for a past world where personnel departments had large budgets and exercised significant power. Cappelli harks back to the time when human resources was regarded as the ‘most glamorous’ business function. Apparently without irony, he regrets that most startups begin without ‘structured management practices and human resource expertise’. It might have been worth considering the extraordinary success of US start-ups, and whether their success might reflect a focus on their product or service rather than the glamour of human resources. The success of the US economy in generating growth might suggest that the decline in emphasis on human resources has not been entirely disastrous. Cappelli leaves the unfortunate impression of an academic who has seen his area of expertise sidelined, and rather than seeking to understand why this has happened, has sought a villain to blame.

This is a missed opportunity. There is much to consider in the ways that the labour market has developed in recent years. In Western economies a trend towards services and away from manufacturing, combined with significant changes in education, have contributed to a workforce which is markedly more mobile, while the gap between the expectations of staff and the reality of work has widened. Very recently, the rise of home working has raised new challenges for management. If it is possible to work from home, how does management reconcile the need for employees to feel trusted with effective control, particularly of poor performance? Given that in a service environment skills are frequently transferable, how does a business justify training, if that simply makes it easier for an employee to benefit from a pay rise elsewhere?

Rather than challenge an inappropriate reliance on accounting, Cappelli has reinforced the sense that too often human resource departments became divorced from the reality of the business and too concerned with their own agendas. This is unfortunately a book which seems to tell us more about the concerns of the author than add to the debate on an important and difficult topic.

‘Our Least Important Asset : Why the Relentless Focus on Finance and Accounting is Bad for Business and Employees’ by Peter Capelli was published in 2023 by Oxford University Press (ISBN: 978-0-19-762980-2). 240 pp.


Andrew spent his career with PricewaterhouseCoopers where he was a partner for more than 25 years. He led a variety of the firm’s businesses both in the UK and globally, with a focus on the pharmaceutical industry. He also led the firm’s work on explaining corporate taxation to civil society and the public. He is now studying for a masters in history which he combines with being a trustee at the London Handel Society.