For those still getting acquainted with the SEC’s announcement on human capital guidelines, the bottom line is:
Going forward (from November 9, 2020) all US public firms must include human capital metrics that are material to the management of their workforce along with required financial disclosures on a quarterly basis (10-k) as well as in their annual reports. The back story is that the investment community is looking to consume this data and use it to meet investor demands that have the potential to affect a firm’s stock price and consequently the income of CEOs. No one saw this coming and few have moved to capitalize on the opportunity. CHROs will soon have little choice but to stand front and center of their firm’s business strategy. If they are not prepared to participate, well that is a different conversation.
The first 50 10-K filings after November 9 were, expectedly, tentative and reflected few substantive differences. (source: FW Cook https://www.fwcook.com/Publications-Events/Alerts/10K-Filings-Show-a-Variety-of-Approaches-to-the-New-Human-Capital-Resources-Disclosure-Rules/)
- 60% wrote about headcount
- 54% wrote about diversity & Inclusion
- 50% Employee Development
- 36% Safety
- 24% Engagement
- 22% Recruitment
Typical of those whose material commitment to managing their workforce by improving diversity and inclusion was similar to Johnson Controls who noted: “As of September 30, 2020, approximately 24% of the Company’s global workforce was female and 19% of the Company’s employees in managerial roles were female. As of September 30, 2020, minorities represented approximately 27% of the Company’s US workforce, of which 18% of our US employees in managerial roles were minorities.”
And now with each quarterly filing, Johnson Controls’ numbers will make up a trend line that investors can use to examine, in part, its impact on the company’s performance.
This early analysis raised several questions that need employer and perhaps SEC resolution:
- To what extent should firms simply state the obvious? [Benefits like health insurance, for example, are required.]
- What will investors make of omissions? Should nothing be said about recruiting unless there is something special to note?
- How much detail/data is required?
As these filings and annual reports are published we would fully expect investors to weigh in and potentially sue employers on specific measures for retention, inclusion, workforce quality, pay equity, and much more. In anticipation, teams within every organization should be looking to define and measure the HC practices they believe are foundational to the management of their business. And, from an HR perspective, their budgets should reflect the business’ investment in HC programs that are expected to impact those metrics. Sooner or later an ROI reflecting HR’s business value will be evident.
We recently held a very informative discussion on the SEC Human Capital guidelines. If you’re looking for a little more background as you weigh what should be included, it’s worth the watch: SEC Guidelines conversation with CXR Community & Solange Charas.
This is one trend I would want to be out in front of.