By Jacquelyn Lumb
A rulemaking petition submitted to the SEC by the Human Capital Management Coalition, which seeks better disclosure about human capital management policies, practices, and performance, has received about a dozen letters of support, including one last month by the AFL-CIO. The AFL-CIO noted that it has submitted comments in the past about the importance of clear, consistent, and comprehensive disclosures to investors and the markets. Human capital management is a key driver of corporate performance and an essential indicator of value creation strategy and long-term viability, according to the AFL-CIO, and it urged the SEC to begin the rulemaking process immediately.
Public Citizen. Public Citizen noted that the petition builds on a robust body of research that shows the importance of human capital management in determining the value of a firm. Firms with superior human capital management enhance company performance and share value, according to Public Citizen. The group cited a number of studies that found a correlation with superior investment outcomes, but noted that the SEC’s Regulation S-K only requires disclosure of the number of persons employed. The disclosure is “woefully inadequate,” in Public Citizen’s view, especially given that firms often state that their employees are their most valuable asset.
Public Citizen expressed support for the nine subjects that the Coalition enumerated in its petition that should be disclosed, which include workforce demographics; stability; composition; skills; culture; health and safety; productivity; and compensation and incentives. Public Citizen said the disclosure also should include information about violations, fines, and work stoppages, and added that it supports a petition signed by 1.2 million investors calling for political spending disclosure. The SEC’s leadership seems to lean more toward reducing disclosure than providing the information that investors want, the organization said.
Jon Lukomnik. Jon Lukomnik, the executive director of Investor Responsibility Research Center, wrote in his personal capacity of his fear that financial reporting is facing what he called a slow-moving, but existential crisis. Today’s markets increasingly depend on information that is not required by GAAP, he explained, and the non-GAAP information should be improved in terms of quality and consistency. He encouraged the SEC to begin considering how its disclosure regime can evolve to provide the information that investors need while balancing the cost to issuers, and suggested that the chairman make this issue a hallmark of his tenure since it would improve both investor protection and capital formation.
ValueEdge Advisors. ValueEdge Advisors, a consulting firm that specializes in corporate governance matters, noted that GAAP was developed in an era when companies’ primary worth was based on real property, equipment, and their inventories of tangible products. Today, many companies’ primary assets and liabilities are human capital—the abilities, knowledge, and relationships of their employees. ValueEdge strongly endorsed the Coalition’s rulemaking petition and said the disclosure it seeks is achievable at a low cost while providing tremendous value to investors, analysts, and issuers. The firm urged the SEC to schedule hearings in pursuit of what it sees as an essential area for agency action.
Walden Asset Management. Walden Asset Management wrote that it tries to strengthen environmental, social, and governance policies of its portfolio companies through shareholder engagement and public policy advocacy. Walden agrees with the Coalition that the current disclosure requirements related to human capital management are unsatisfactory. More robust disclosures would support investors’ long-term objectives, stabilize markets, and encourage employers to invest in their employees, Walden advised.
British Columbia’s Municipal Pension Board of Trustees. British Columbia’s Municipal Pension Board of Trustees also wrote in support of further discussion about the importance of human capital metrics and disclosures. As long-term investors, the board said it understands the importance of measuring and reporting non-financial information, and said human capital management metrics are “a critical and missing piece of the puzzle for investors.” The board called for further research, discussion, and consideration of the importance of human capital management metrics.