Over the past two weeks since i4cp published its initial
guidance on the U.S. Securities and Exchange Commission’s (SEC) recent ruling
on human capital disclosure (member only),
we’ve engaged in many conversations with a cross section of senior-level
business executives – including several who serve on public company boards – to gain insight into the corporate response.
It is clear from those
conversations that – while some have increased disclosure of human capital
metrics (e.g., Walmart, Microsoft, Deutsche Bank, Allianz, to name a few) – awareness
and strategies are in early stages at most companies. However, we anticipate
this will be a topic of discussion at many corporate board meetings in
preparation for upcoming earnings releases.
As part of i4cp’s continued coverage, we are reiterating our
initial guidance and recommendations, while also putting forth additional information
Our initial guidance published on September 28, 2020:
- Create and maintain an inventory of your organization’s
total talent (including and beyond full-time and part-time employees). While U.S.-based
public companies remain mandated by the SEC to disclose the total number of
people they employ, the SEC now encourages these companies to disclose
the number of contractors and contingent workers, too.
- Be prepared to be called on for insights and data on any
element of the workforce associated with business risk and/or readiness,
specifically those related to culture, capability, and ESG (environmental,
social, and corporate governance).
- Be Aware: In this era of stakeholder capitalism, ESG has vaulted to
the forefront. ESG often incapsulates elements typically associated with human
capital. An example is the September 2020 World Economic Forum white paper, Measuring
Stakeholder Capitalism Towards Common Metrics and Consistent Reporting and
Sustainable Value Creation. In that white paper about global ESG metrics,
elements specific to diversity and inclusion, well-being, and skills for the
future are prominent.
- Prepare now for future public disclosure specific to workforce metrics.
A good start is to become familiar with the proposed International Organization
for Standardization’s (ISO) 30414 Human Capital reporting standards.
- Understand your organization’s unique and critical
intangible business value drivers (e.g., innovation, diversity, culture) and
their associated indicators and measures, as well as actions being taken to
considerations as of October 23, 2020:
- As we stated in our initial guidance, the
amendments will be effective 30 days after publication in the Federal
Register. The publication date was October 8, 2020 and the effective date
is now November 9, 2020.
- Any listing company on U.S.
exchanges is subject to this new SEC disclosure.
- While human capital
metrics disclosure is dependent on what is material to the
business, there is no clear consensus on what companies will or should
disclose. What is considered material will likely depend on the industry
and the markets within which an organization operates. One indicator may
be reviewing the people data that is currently elevated to the board as a
baseline of what could be deemed material. This is a good time to consider
benchmarking the people data that is elevated against that of other
organizations (e.g., culture measures, diversity/inclusion measures, ESG,
- Examine current references
or statements about the workforce in your recent proxy statements, 10Ks,
10Qs, earnings calls, and investor presentations. Be aware of language
used that may be deemed material.
- It is important that HR
develops a narrative for the board of directors on which human capital
components matter most, what the company is doing to optimize those
components, and how it is progressing against those objectives. However,
to mitigate risk, we expect companies initially will publicly disclose
data without detailed narrative. We anticipate this will evolve over time
as organizations are likely to follow each other’s leads in the amount of
detail disclosed and descriptive narrative. This would be similar to what
we have seen over the last few years with more detailed diversity disclosures.
- It is unclear where
ownership of human capital disclosure will reside within an organization.
What is clear is that it’s a multi-disciplinary responsibility, and the HR
function will be more involved in the reporting process.
- Importance of the
Workforce Analytics function is increasing and that will require more
collaboration with Finance, Investor Relations, and the General Counsel.
For the HR function specifically
Now is the time to
better understand the leading indicators of the people and culture components
of the business that have the greatest impact on business outcomes. If you
say, “We have the best talent,” how are you measuring that? If you say,
“Our workforce is highly engaged,” what percent of the workforce is highly
engaged? What is the breakdown between executives, managers, and employees who are
highly engaged? And what factors drive high engagement of the
workforce? If attracting, developing, and retaining talent is key to
success, what do you spend on training? What is the turnover rate by
segment, geography, and employee level?
These are a small sample of questions to consider now that
investors will be expecting more detailed disclosures on the workforce.
We will continue to engage in and monitor discussions
related to the new SEC ruling, and human capital metrics in general, and will
publish updated guidance and considerations as appropriate. In the meantime,
i4cp member organizations can access the following related resources: