- An advisory panel unanimously voted last month to propose a rule to the Securities and Exchange Commission that would require publicly traded companies to report more robust data regarding their workforce and human capital management.
- The new rule would require companies to disclose the number of people employed, organized by whether they are full-time, part-time or contingent workers, in addition to the total cost of the company’s labor force, broken down into compensation brackets.
- The proposed regulation also asks for turnover or comparable workforce stability metrics and sufficient workforce demographic data so investors can better understand a company’s “efforts to access and develop new sources of talent, and to evaluate the effectiveness of these efforts.”
A full advisory committee voted on a range of human capital management disclosures during a Sept. 21 meeting in an effort to supplement pre-existing requirements issued by the SEC and to suggest a concrete definition of the term “human capital.”
Among some of the criteria the panel wanted to include for “human capital” were metrics on compensation, employment status, turnover data and demographics. The committee also recommended the regulatory agency ask companies to provide more detailed information on how the firm’s labor practices, compensation incentives and staffing fit within its broader operational strategy.
Though the SEC previously updated its human capital disclosure rule in 2020 by amending its description of “business,” it did not outline or prescribe what exact information companies needed to disclose and did not explicitly define “human capital.” This ambiguity has led to varying levels of transparency and information shared from companies, according to the advisory committee.
“The lack of specificity provides companies with discretion to determine which factors are material to investors, and thus what to report,” the Investor Advisory Committee said in a statement summarizing its proposal.
“Research following the updated 2020 rule shows that issuers provide inconsistent disclosures that cannot be reliably compared — a finding that is consistent with concerns expressed by investors at the time the 2020 rule was adopted,” the committee said.
According to the advisory panel, investors still require fundamental human capital management metrics to navigate industry- and company-specific information to seize opportunities and mitigate risks.
However, some experts feel the SEC could further broaden its definition of “human capital” by including people with disabilities.
“Transparency on corporate demographic data is key to improving diversity and inclusion. As the SEC considers enhancing corporate disclosures, investors . . . urge it to include data on disability status,” New York State Comptroller Thomas DiNapoli told ESG Dive.
“We want the companies in our portfolio to ensure inclusive hiring practices and welcoming workplaces for people with disabilities because it will help companies outperform their peers and provide sustainable long-term returns."
DiNapoli also wrote to SEC Chair Gary Gensler in February 2022, advocating for the inclusion of data related to disability status as part of any proposed rulemaking around human capital management and diversity disclosure.
As of now, the agency has not explicitly stated whether it will include disability status data.
According to the statement released by the IAC, the SEC is expected to release proposed rules to strengthen the existing workforce disclosure rules soon.