The Human Capital Management Coalition (HCMC), a group of 25 institutional investors with more than $2.8 trillion in assets under management, has petitioned the US Securities and Exchange Commission to enact a rule that would require companies to disclose details about their human capital management in their reports to shareholders, David McCann reports at CFO:
The group did not define any specific metrics that it wants to be reported, instead offering nine broad categories of information deemed fundamental to human capital analysis as a starting point for dialogue:
- Workforce demographics
- Workforce stability
- Workforce composition
- Workforce skills and capabilities
- Workforce culture and empowerment
- Workforce health and safety
- Workforce productivity
- Human rights
- Workforce compensation and incentives
At present, public companies are not required to disclose anything about their human capital other than their number of employees, unless you count the requirement to reveal the compensation paid to top executives. Investors don’t even know how much money a company spends on its workforce each year.
The HCMC’s proposal is in keeping with a trend we’ve observed in our recent research at CEB (now Gartner) of investors taking an increasing interest in talent issues: Earlier this year, we released our Investor Talent Monitor (which CEB Corporate Leadership Council members can read in full here), showing that among the 900 largest companies in US equity markets, the percentage of organizations talking about talent on investor calls increased from 55 percent to 70 percent from 2010 to 2016. Culture and recruiting were the most common talent topics brought up on these calls, but other issues, like diversity and inclusion, are also subject to growing attention from investors.
This is also not the first time in recent months that investors have asked the SEC to impose new reporting rules related to talent: In March, over 100 institutional investors issued a joint letter urging the commission not to delay a rule adopted in 2015 that would require companies to disclose the ratio between the compensation of their CEO and their median employee in their proxy statements.
With investors becoming more interested in companies’ organizational cultures and talent strategies (and rightly so), it’s not surprising to see a stronger push toward human capital reporting. There remain numerous challenges, however, when it comes to making talent metrics useful to shareholders, mainly that there is not yet a generally agreed-upon method for measuring the impact of talent or of communicating that impact to investors. McCann adds, however, that the International Organization for Standardization (ISO) is in the process of developing a standard for human capital reporting, which it expects to release for comment in the first half of 2018 and hopes to finalize by the end of next year.