TheCorporateCounsel.net

While we have not yet seen a proposal from the SEC revisiting the human capital disclosure requirements, last week the SEC’s Investor Advisory Committee considered a draft recommendation on human capital disclosure that was recommended by the SEC Investor Advisory Committee’s Investor-as-Owner Subcommittee. As this Cooley PubCo blog notes, the Investor Advisory Committee voted to approve, with two abstentions, the subcommittee’s recommendation. The draft document that was voted on last week includes the following recommendations:

First, the IAC recommends that the Commission strengthen current Item 101(c) under Regulation S-K pertaining to human resources disclosures by requiring disclosure of the following:

1. The number of people employed by the issuer, broken down by whether those people are full-time, part-time, or contingent workers;

2. Turnover or comparable workforce stability metrics;

3. The total cost of the issuer’s workforce, broken down into major components of compensation; and

4. Workforce demographic data sufficient to allow investors to understand the company’s efforts to access and develop new sources of talent, and to evaluate the effectiveness of these efforts.

Second, the IAC recommends that the Commission consider narrative disclosure, in the Management Discussion & Analysis, of how the firm’s labor practices, compensation incentives, and staffing fit within the broader firm strategy. Such a discussion would address what portion of labor costs management views as an investment and why, including how labor is allocated across areas designed to promote firm growth (e.g., R&D) and those necessary to maintain current operations rather than increase sales revenue (e.g., compliance). Our recommendation here is consistent with the recommendation put forward in a June 2022 rulemaking petition submitted by former SEC commissioners and senior officials as well as professors of accounting and securities law.

Now that the Investor Advisory Committee has spoken, we will see what the Commission decides to do with human capital disclosure requirements.

– Dave Lynn