Human Capital Disclosure Becomes the Law – Part 2

Yesterday I posted on the SEC’s adoption of amendments to Regulation S-K disclosure to require that companies describe any human capital measures or objectives they focus on in managing the business, and I promised to post again with more details when the SEC posted the final rules on its website. This it did. However, because the disclosure requirements are principles-based, there is not much additional color I can add. The final rule amends Item 101(c) of Regulation S-K, by adding a new subsection (2), as follows:

(c) Description of business.

* * *

(2) Discuss the information specified in paragraphs (c)(2)(i) and (ii) of this section with respect to, and to the extent material to an understanding of, the registrant’s business taken as a whole, except that, if the information is material to a particular segment, you should additionally identify that segment.

* * *

(ii) A description of the registrant’s human capital resources, including the number of persons employed by the registrant, and any human capital measures or objectives that the registrant focuses on in managing the business (such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the development, attraction and retention of personnel).

That’s it! This brevity (among other points, notably, the absence of climate change disclosure requirements) is what led two of the SEC Commissioner to dissent from adopting the final rules. According to the SEC, commenters to the proposed rules were sharply divided on whether the final rules “should define human capital” and on the matter of specificity. “In the Proposing Release, we requested comment on whether the proposed amendment should include other non-exclusive examples of human capital measures or objectives, such as the number and types of employees, including the number of full-time, part-time, seasonal, and temporary workers. A number of commenters supported the inclusion of specific human capital management disclosure metric requirements or examples. . . . A number of commenters, also highlighting the limitations of mandating or suggesting certain metrics for the purpose of increasing comparability in this area, opposed the inclusion of either non-exclusive examples or prescriptive human capital management disclosure metrics.” Consequently

The final amendments only identify various human capital measures and objectives that address the attraction, development, and retention of personnel as non-exclusive examples of subjects that may be material, depending on the nature of the registrant’s business and workforce. . . . Each registrant’s disclosure must be tailored to its unique business, workforce, and facts and circumstances. Consistent with the views expressed by some commenters, we did not include more prescriptive requirements because we recognize that the exact measures and objectives included in human capital management disclosure may evolve over time and may depend, and vary significantly, based on factors such as the industry, the various regions or jurisdictions in which the registrant operates, the general strategic posture of the registrant, including whether and the extent to which the registrant is vertically integrated, as well as the then-current macro-economic and other conditions that affect human capital resources, such as national or global health matters. [emphasis added]

To the vexation of many, including the two commissioners, the SEC seems to be taking a laissez-faire approach, allowing companies and thought leaders to develop best practices on their own. So let’s get to it!

This entry has been created for information and planning purposes. It is not intended to be, nor should it be substituted for, legal advice, which turns on specific facts.