Over the years, we have consistently found strong evidence that training expenditures are a predictor of future stock market returns for publicly-traded companies.  (See, for example, "How's Your Return on People?", Harvard Business Review, March 2004.)
 
Following the financial cataclysm of 2008, we explored how well the relationship between training investments and stock market performance had held up.  We were particularly interested in looking at bank stocks, the ones that had been most directly caught up in last year's market mayhem, in which external economic factors seemed to be the main drivers of stock performance.
 
Did the relationship still exist or had it even vanished entirely, swamped by larger forces at play in the financial world? 
 
The Answer?  Yes, the relationship still exists.  Our statistical analysis found that training expenditures (as well as year-over-year changes in those expenditures) remain a powerful predictor of subsequent stock prices.  Further, this relationship appears to have existed even during the tremendous turbulence of 2008. 
 
What Does This Mean?  We believe that the existence of a relationship between training investments and stock performance reflects multiple factors:

1. Taking the findings at face value, companies that choose to make larger investments in their employees are better-positioned for success.

 

2. Training expenditures may also serve as an indicator of an organization's willingness to take a longer-term perspective on success (looking beyond maximizing this quarter's earnings report).

 

3. Training expenditures (or changes in those expenditures) can represent a window into an organization's future financial health.  A firm that's willing to incur the "cost" of significant long-term investments is, at minimum, probably not on the verge of collapse.  (And conversely, drastic cuts in training expenditures from one year to the next may signal upcoming trouble.)
 
The Bottom Line.  A firm's spending on training is a critical piece of information for all stakeholders (investors, employees, etc.) to know.  If you have a stake in an organization's success, you should demand this information.  And if it is either not forthcoming, or if it suggests that the company is headed in the wrong direction, you might want to consider heading for the door.