Above the bottom line: The link between an enterprise's investment in training and the performance of its stock has huge implications for the training industry - Curt Plott and Laurie Bassi at Knowledge Asset Management - Interview

T+D, April, 2002 by William Powell

Guessing doesn't get you far in the stock market. But add experience, insight, and a lot of research and you could be onto something. Such is the premise of one fledgling investment management company, Knowledge Asset Management

Launched on December 3, 2001, KAM aims to prove what many trainers and knowledge executives have known in their guts all along: Employee education and training not only increase employee performance, but also make for a better performing company. The proof? KAM, among others, thinks investing in a company's human capital is linked to its performance in the stock market. As for the specifics, we'll let KAM explain.

T D talked with KAM chairman Laurie Bassi and principal Curt Plott about the implications of that link and its effect on the bottom line and the training industry as a whole. Or what can happen when, as Bassi puts it, you "use the power of the financial market as a catalyst for change."

T D: Curt, you were president and CEO of ASTD for 18 years. Who else is on your team at Knowledge Asset Management?

Plott: We currently have seven people: CEO Stan Sorrell, who is the retired CEO of Calvert Group; CIO Craig Van Holden; and chief research officer Dan McMurrer. Herb Rubenstein is our strategic officer, and Scott Ciganko is working with us on sales.

T D: Tell us about the creation of Knowledge Asset Management and the germination of the idea that training investment improves the bottom line. When did it hit you that there's a definite link between training and a company's stock value?

Plott: The idea to create KAM had its genesis five or six years ago when Laurie was VP of research at ASTD, which was trying to connect investments in learning to the bottom line.

Bassi: ASTD published its first findings making that linkage in May 1998, but it had been a glimmer in my eye since 1996. It was 1998 when we started to get the first research results that said, yes, there is a link and that possibly we could do something like KAM. But it's a long way from getting research results to starting a business to put those results to work. But we feel we've assembled an exceptional group of people who are also quite passionate about the ideas.

T D: What's your company's mission?

Bassi: Social responsibility is a large part of what has propelled us forward. We hope our research will have positive effects on employees and the quality of workforce training. This isn't just about making money. There aren't many ideas or businesses in which you can do well and do good at the same time, and that has certainly been a part of what compelled us to do what we've done. It's a very large part of what makes KAM tick.

Stan Sorrell was involved in the early days of what some people refer to as the social responsibility investment movement and can tell long stories about where it made mistakes. He thinks the primary mistake, which he sees us not making, is that it led with the attitude that it was the right thing to do and, by the way, you could make money doing it. We lead with the idea that it's a very solid way to make money, and you can do good while you're doing well.

Plott: Put a different way, a former chief executive of a supplier company I talked with said, "Oh, you're asking us to put our money where our mouth is; you want us to invest in what we really believe in."

I think our philosophy will motivate many people in the field to do the right thing--along with making money. Certainly, the first requirement is that our fund performs well.

Bassi: What got me interested in education and training is the notion that once an individual leaves the school system, the workplace is the source of his or her primary learning, or at least the learning that has the greatest economic consequence. Unfortunately, we all know that tremendous pressures in the workplace cause underinvestment in education and training. KAM is something we can do to offset underinvestment incentives, so that our investors can channel funds and thereby help grow firms that are investing in people. That's also a good thing for employees. Training increases their wage potential and reduces their prospects for unemployment. It's a real win- win-win.

T D: Does that define your investment strategy fully, or are there other aspects?

Bassi: We look at other variables. First, we look for firms that are making extraordinary investments in employee education and training, so if a firm isn't making a significant investment, measured by how much it spends, we don't look at it a second time. If a company passes that first screen, then we look at more traditional financial variables that other analysts look at. Spending a lot of money on education and training isn't enough to get a company into KAM's portfolio. It's a necessary but not sufficient condition.

We use a sophisticated mathematical model that factors in a firm's investments in education and training, as well as a set of other financial variables. That mathematical model calculates an expected total stockholder return, and we rank firms based on those calculations. Obviously, we're looking for firms with the highest expected return for our investment. That's how we make our decisions.