Human Capital Disclosure Becomes the Law

Today the SEC adopted amendments to Regulation S-K disclosure, including a requirement that companies describe any human capital measures or objectives they focus on in managing the business, to the extent material to an understanding of the company’s business as a whole. We have written on human capital management issues more times than we care to count, but this is the most concrete guidance to date. And it is now a legal requirement. As with much of the SEC’s recent disclosure requirements, these are principles-based disclosure rules; that is, they do not list specific required disclosures concerning human capital. According to the Fact Sheet (the final rules have not been posted as of this moment), the final rules amend Item 101(c) by:

  • clarifying and expanding its principles-based approach, with a non-exclusive list of disclosure topic examples drawn in part from topics currently contained in Item 101(c);
  • including, as a disclosure topic, a description of the registrant's human capital resources to the extent such disclosures would be material to an understanding of the registrant’s business; and

Two of the SEC Commissioners voted against adoption the new rules because, in their view, the rules do not go far enough on HCM disclosure and omit disclosure requirements for climate change, “today’s failure to address climate change risk continues to hamper the efficient sorting and comparison of modern companies, as does the failure to adopt detailed, specific disclosure requirements concerning human capital.” These final rules are based on rules proposed in August 2019. The SEC has not yet proposed ESG disclosure rules, and the Investor-as-Owner Subcommittee of the SEC’s Investor Advisory Committee only issued its recommendation relating to ESG disclosure in May 2020 (compared to March 2019 for the Subcommittee’s recommendation on HCM, see Should Compensation Committees Take on the Responsibility of Human Capital Management?). Seems like the SEC is taking these issues one at a time.

This topic will be addressed in more than one presentation (including two with this blogger) in the upcoming NASPP Virtual Conference beginning September 1 and the upcoming “Proxy Disclosure & Executive Compensation” Conferences, beginning September 21 and also held virtually so that everyone can safely attend.

Stay tuned, as we will post again as soon as the final rules are published.

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.