In November 2020, amendments to Reg S-K to modernize the required business narrative became effective. The amendments including changes related to disclosure about a company’s human capital resources, replacing a requirement to disclose only the number of employees with a new requirement to disclose, to the extent material, information about human capital resources. In particular, the amendments identified as non-exclusive examples of measures or objectives that the company may focus on in managing the business “measures and objectives that address the attraction, development, and retention of personnel.” Even these measures, the SEC emphasized, were not a mandate. However, then-SEC Chair Jay Clayton said at the time of adoption that he expected “to see meaningful qualitative and quantitative disclosure, including, as appropriate, disclosure of metrics that companies actually use in managing their affairs.” The principles-based rules did not articulate specific metrics for human capital resources disclosure, allowing companies wide latitude in crafting their disclosure to focus on information that is material to each company. At the same time, however, the rules did not provide much direction, leaving many companies at something of a loss for how to proceed. In this paper, Compensation Advisory Partners provides an “early read on developing best practices” regarding human capital disclosure, analyzing the earliest disclosures to provide some guidance on topics, trends and level of detail provided. The CAP paper also includes a number of useful samples. Similarly, Willis Towers Watson reviewed the first three dozen human capital disclosures by companies in the S&P 500 published in 10-Ks filed since the effective date of the new requirement and, in this report, provides some data on the prevalence of topics and metrics.
In his 2021 letter to directors, Cyrus Taraporevala, President and CEO of State Street Global Advisors, one of the largest institutional investors, announced SSGA’s main stewardship priorities for 2021: systemic risks associated with climate change and the absence of racial and ethnic diversity. SSGA intends, he said, “to hold boards and management accountable for progress on providing enhanced transparency and reporting on these two critical topics.” SSGA’s new voting policies reflect those intentions.
SEC Commissioner Allison Lee has been speaking up quite a bit recently about diversity and inclusion and about climate change—and not just at SEC open meetings. In her recent dissents in voting on proposals regarding amendments to Reg S-K disclosure requirements related to the descriptions of business, legal proceedings and risk factors (see this PubCo post) and amendments to the SEC’s shareholder proposal rules (see this PubCo post), Lee did not hesitate to express her misgivings about the failure of the first proposal to mandate disclosure regarding diversity and climate change and the anticipated adverse impact of the second proposal on shareholder proposals related to ESG. In recent remarks to the Council of Institutional Investors Fall 2020 Conference, Diversity Matters, Disclosure Works, and the SEC Can Do More, and in this NYT op-ed, Lee reinforces her view that the SEC needs to do more in terms of a specific mandate for diversity and climate disclosure.
Will companies accede to calls for actions to improve racial and ethnic diversity in hiring and promotion? California considers a new mandate for racial/ethnic board diversity
In this excellent NYT article from early June, the author painfully explores the view of many African-American executives that, notwithstanding the public condemnations of racism by many public companies and the “multimillion-dollar pledges to anti-discrimination efforts and programs to support black businesses,” still, many of these companies “have contributed to systemic inequality, targeted the black community with unhealthy products and services, and failed to hire, promote and fairly compensate black men and women. ‘Corporate America has failed black America,” said [the African-American president of the Ford Foundation]. ‘Even after a generation of Ivy League educations and extraordinary talented African-Americans going into corporate America, we seem to have hit a wall.’” In the article, a number of Black executives offer recommendations for actions companies should take to begin to implement the needed systemic transformation. And now, third parties—from proxy advisors to institutional investors to legislators—are taking steps to induce companies to take some of these actions. Will they make a difference?
by Cydney Posner When the Chair of the SEC and the editors of Bloomberg both think it’s worth getting on their soapboxes to promote the same issue, maybe it’s time for public companies to pay attention. The issue? Women on Boards. Earlier this month, the editors of Bloomberg published “Companies […]