The Securities and Exchange Commission Investor Advisory Committee has called on the commission to modernize and improve corporate reporting and disclosure of human capital management practices.
The Investor Advisory Committee recommendations come on the heels of calls by U.S. Sen. Mark R. Warner (D-VA) for accounting principles and reporting requirements to view workforce investments in human capital as assets, rather than costs, in a knowledge-based economy.
Last July, Sen. Warner, a former business executive and current member of the Senate Banking Committee, pressed the SEC to use its rulemaking authority to require companies to tell shareholders whether and how they are investing in their workforces through human capital management disclosures. The Investor Advisory Committee’s recommendations to the SEC today track closely with the human capital reforms Sen. Warner proposed in his July letter.
“I’m very encouraged to see the Investor Advisory Committee come to similar conclusions based on the evidence: that the SEC should recognize the significance of human capital management and modernize corporate reporting and disclosure on it. In particular, I’m encouraged to see their recommendations include training per-employee. The recommendations would go a long way to provide investors with the critical information they need to evaluate whether a company is making the appropriate investments in its workforce to compete in a 21st century economy. Just as there were increasing calls for greater and standardized disclosure of R&D in the 1970’s, there’s growing support for more human capital disclosure for the purpose of long-term economic growth. I hope the SEC responds with quick, meaningful action,” Sen. Warner said today.
Human capital management disclosures provide a snapshot of how U.S. companies compensate, train, retain, and incentivize their employees. Several studies have found that human capital management disclosures are an important predictor of a company’s long-term success in a changing economy. For example, a 2015 McKinsey study found that firms that prioritize learning programs for their employees perform better overall than those that do not. As the Investor Advisory Committee also noted, a recent Harvard report found a positive correlation between disclosed training programs and financial performance. Requiring companies to disclose human capital management indicators would provide investors with a better understanding of a firm’s performance and potential for long-term growth.
The SEC’s current human capital disclosure requirements are extremely limited, requiring disclosures only of the number of employees, their median compensation, and CEO compensation. In a July letter, Sen. Warner urged the SEC to heed the calls of investors and utilize its rulemaking authority to require companies across the board to provide further details relating to human capital management. Specifically, Sen. Warner encouraged the SEC to revise and modernize Regulation S-K to require public reporting companies to disclose more qualitative and quantitative information regarding human capital. While the SEC would be responsible for developing and finalizing the requirements, human capital disclosures could potentially require firms to make public information about employee education and training programs; workforce demographics; employee turnover; employee compensation; and workforce compensation and incentives.
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