A survey of recent SEC commentary letters on human capital disclosures


Late last year, the Securities and Exchange Commission (SEC) passed changes to modernize the business description, legal proceedings, and risk factor disclosures that registrants are required to make in accordance with the SK regulation. An important element of these updates was the new requirement of Article 101 (Description of the activity) of the SK Regulation requiring registration in order to provide certain information on human capital as it is important for understanding of its activity as a whole.

The new rule amended section 101 (c) to require registrants to provide “a description of the registrant’s human capital resources, including the number of people employed by the registrant, and any measure of human capital or any objective that the registrant focuses on in running the business ”. Disclosure is only required to the extent that such information is important to the registrant’s business as a whole, and the SEC in the adoption release said that each filer’s disclosure “should be tailored to its business, to its workforce and unique facts and circumstances ”.

As a result of these changes, along with the disclosure of the number of employees, companies also need to think about how to comply with the new principled rule. The SEC intentionally did not define “human capital“, believing that the term “can change over time and can be defined by different companies in an industry-specific way.” The adopted rule states that the information required may include “measures or objectives that deal with the development, attraction and retention of personnel”. Corn the SEC made it clear that these are only “examples of potentially relevant topics, not mandates”. Thus, companies have wide discretion in deciding which human capital metrics to disclose.

Now that we have gone through a 10K period for calendar year companies with the new human capital disclosures, we have decided to take the opportunity to review all of the SEC comment letters on capital disclosures. human to gain insight into SEC staff’s review of such disclosures as well as lessons learned for companies considering revising their disclosures in the future. We present our findings below.

Summary observations

Initially, our conclusions below are based on a review of letters of comment from SEC staff and revised documents associated with those reviews. Interestingly, none of the SEC staff comment letters related to staff review of a 10-K filing, with most letters involving Securities Act registration statements. 1933. (This may not be too surprising given the time lag between the 10-K filing season (eg, February / March period) and typical timeline for resolving letters of comment and when they are made public. )

Our research revealed general trends in how companies have responded to new disclosure requirements. When the SEC asked companies for more information on what to disclose about human capital, the original documents most often included the number of employees and the location of those employees. In addition, these deposits sometimes disclosed:

  • Whether employees are represented by a union or covered by a collective agreement.
  • Status of the company’s relationship with employees (eg, good, satisfactory).
  • If the company has experienced major work stoppages in recent years.

As shown in the underlying data graph linked here, the SEC staff commentary on human capital reporting often simply cited the new regulations without any further explanation or guidance. However, an analysis of registrants’ revised filings in response to comments from SEC staff sheds more light on the SEC’s expectations, or at least how registrants interpreted the requirements. While there were large differences in the number and number of human capital indicators disclosed by companies, the following were the most common:

  • Number of employees.
  • Geographical distribution of employees.
  • Distribution of employee types (eg, full-time, part-time, seasonal).
  • Measures taken to identify, recruit and retain new and existing employees.
  • Commitments to diversity and inclusion.
  • Whether employees are represented by a union or covered by a collective agreement.
  • Status of the company’s relationship with employees (eg, good, satisfactory).
  • Employee incentives and benefits (eg, insurance programs, stock-based compensation awards, cash performance bonus awards).
  • Employee learning / development / training programs.
  • Core values ​​(eg learning, development, inclusion, diversity, teamwork).
  • Social impact and social justice initiatives.
  • Impact and response to the COVID-19 pandemic.
  • Employee safety measures.
  • Diversity statistics.
  • Use of employee engagement surveys.

It is clear from our review that human capital information is individualized and industry dependent. Most of the repositories only touched on a few of these topics. Companies also took a qualitative or quantitative approach in response to comments, but the general theme is that quantitative information was generally not provided in the response and, where applicable, information on diversity statistics.

We will continue to monitor SEC developments in this area. In particular, recent media reports say the SEC is actively working on a new proposed rule that would require public companies to disclose more data about their human capital.

The authors acknowledge the contribution of summer associate Callie Leopard.


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