With the Securities and Exchange Commission (SEC) putting new human-capital data disclosure rules into place, companies’ HR leaders will find themselves taking on more prominence and responsibility. That’s because publicly traded companies will now be required to disclose a variety of human capital information.
According to HR Executive, this represents an exciting opportunity: “The role of HR has finally risen to its rightful place: the boardroom.” Their message to chief human resources officers (CHROs) is that the future “isn’t just feel-good, benefits-focused HR. Now you are dealing with providing data to financial institutions like BlackRock, and billions of dollars will be traded on the metrics that you report.”
Chief Learning Officer frames the SEC’s actions in similar terms: “The world of learning and development and HR just changed dramatically for the better, and there will be no going back. The change is coming first to publicly traded companies, but it will not stop there. Within a few years, the change will permeate all organizations, even privately held companies and nonprofits. The long-awaited age of transparency for both investors and employees is finally here.”
What to disclose
Savvy CHROs and their organizations want to know what human capital metrics the SEC intends to focus on. Thomson Reuters writes that “disclosures would be based on a concept of materiality. This means companies should disclose information that a reasonable person would find important in the total mix of information in making a decision to buy or sell a particular company’s stock.”
Forbes goes into a bit more detail, and concludes with a caution: “The SEC rules do not include a definition of ‘human capital’ or a list of required measures to disclose. The SEC rules do include the expectation that disclosures will be specific to a company’s own business or industry and allows for disclosures to evolve in response to changes in a company’s environment. However, the new disclosures could impact a company’s liability with regards to public SEC filings if the source of validity of the data is ever in question.” Put another way, whatever data a company chooses to disclose, it will be critical that it’s accurate.
The National Law Review notes that “over the past several years, human capital has become increasingly important to investors,” and provides some insight as to what organizations might decide to report. “‘Human capital’ generally refers to the value of a company’s workforce, which is often influenced by a company’s policies and procedures related to recruitment, retention, training, development, health and safety, diversity and inclusion, and culture. Investors see human capital as an essential component in creating long-term shareholder value and have increasingly prioritized strong human capital practices.”
Focus on diversity, equity, and inclusion (DEI)
The Harvard Law School Forum on Corporate Governance examined “50 10-Ks filed by registrants with a market capitalization greater than $1 billion.” One key topic: “54% of registrants addressed diversity and inclusion. The most robust disclosures specifically addressed how diversity and inclusion were incorporated into various aspects of the company (for example, training, recruitment, goal setting, etc.) and incorporated statistical data.”
The law firm King & Spalding writes that they have also “reviewed a sample of recent 10-K filings and identified a few trends which provide helpful insight for companies going forward.” These include “employee headcount data (geography, gender, ethnicity); diversity and inclusion initiatives; and pay equity.”
Where to begin
With those trends in mind, an excellent place for HR leaders to start is by establishing ongoing, monthly monitoring of DEI metrics, including race, ethnicity, and gender pay gaps (pay equity) with the help of an expert, external technology partner. In an ever-changing landscape of DEI-related laws and initiatives, doing so will help companies not only reduce risk but achieve greater success as well.