SEC Proposes Disclosure of Material Human Capital Metrics with Proxy Advisory Firm Guidance Expected Next Week

August 16, 2019

With an eye toward modernizing corporate disclosures, the SEC proposed that companies disclose human capital measures or objectives to the extent they are material to investors as part of the description of their businesses on their annual report (Form 10-K).

The proposed disclosure would include “any human capital measures or objectives that management focuses on in managing the business, to the extent such disclosures would be material to an understanding of the registrant’s business” as a whole, such as attraction, retention and development.

The proposal would replace the current headcount disclosure in which companies provide the number of employees worldwide as part of the description of their businesses.

The SEC is seeking feedback on the scope of the disclosure, including whether the rule should include an illustrative list of specific material topics for disclosure (such as turnover, training hours per employee, or promotion rates) or a list of topics immaterial to disclosure.

Proposal part of ongoing SEC disclosure effectiveness process:  The proposal stems from a staff review of disclosure requirements mandated by the Jumpstart Our Business Startups (“JOBS”) Act that resulted in an “evaluation of the information our rules require registrants to disclose, how this information is presented, where this information is disclosed, and how [the SEC] can better leverage technology as part of these efforts.”  The proposed rule also makes changes to how companies disclose their legal proceedings and business risk factors, including regulatory risk.

Chair Clayton reinforces importance of human capital proposed disclosure:  In a press release, Clayton stated, “I applaud the staff for their efforts to modernize and improve our disclosure framework, including recognizing that intangible assets, and in particular human capital, often are a significantly more important driver of value in today’s global economy.”  The proposal provides a 60-day comment period from the date of publication in the Federal Register, during which time the HR Policy Association will submit comments.

Commission expected to consider proxy advisory firm guidance next week:  The Commission has scheduled an August 21 public meeting to consider guidance approved by the Commission to further clarify proxy advisory firm responsibilities under the Investment Advisors Act.  For updates, click here.