The emerging role of HR in required human capital reporting

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Human resources professionals have a relatively new role to play in public companies: contributing to human capital reports required by organizations in annual reports, a requirement that the Securities and Exchange Commission (SEC) mandated last year. . This role, which continues and evolves with collaboration between organizations, could elevate the HR profession.

For SOEs, “Gone are the days when management could make decisions about human capital completely behind closed doors, without risk and without taking into account the implications of those decisions in terms of diversity, pay equity, employee security. employees, etc. Said Daniel Messeloff, an attorney for Tucker Ellis in Cleveland, Ohio.

“To an increasingly important degree, investors are increasingly concerned about these measures,” he added.

Employees and customers are also attentive, noted Laura Richman, lawyer at Mayer Brown in Chicago.

SEC regulations updated

In an update last year to the SK regulations, which govern the filing of corporate annual reports such as Form 10-K, the SEC demanded information on human capital.

“This has been investor-driven for years now,” said Sheri Wyatt, environmental, social and corporate governance partner at PricewaterhouseCoopers (PwC) in Chicago. “Investors recognized the importance of structuring human capital,” but companies did not provide this information.

Now the SEC is requiring disclosure of information that would be important to investors about how the company uses human capital, which may include employees and independent contractors, Wyatt said.

The reporting mandate is a principled requirement that gives businesses the flexibility to determine what should be disclosed. “It will vary from company to company,” said Howard Fischer, lawyer at Moses & Singer in New York and Hackensack, NJ.

Investor curiosity

The COVID-19 pandemic has increased interest in HR, with investors focusing on workplace safety, remote work issues, succession planning and the impact of these issues on business continuity activities, Richman said.

“Although the rule does not provide detailed metrics for each business to be discussed other than the number of employees, the rule itself mentions metrics or goals that deal with staff development, attraction and retention. , depending on the nature of the business and workforce, ”she said.

Diversity, equity and inclusion disclosures

“In addition, protests against racial and social injustice have sparked conversations about discrimination in the workplace, as well as the role public enterprises play in social change,” Richman said. “As a result, many companies are addressing board and workforce diversity and inclusion, training and development opportunities, and pay equity in their human capital disclosures.

Diversity disclosure could be about not only diversity today, but also how a company is going to deliver diversity in the future, Fischer said.

There is usually a story behind an employer’s efforts at diversity, equity and inclusion, noted Wyatt. One of the reasons for including a diversity discussion in the Form 10-K is that the business is telling the story itself and will be less likely to be asked about it later.

But there’s a lot of variation in what diversity news companies disclose, Wyatt said.

Some companies focus on quantitative data while others rely on qualitative information. Organizations can provide data on the gender of employees, minority versus non-minority status, and perhaps break out race and ethnicity, she said. Some provide data on LGBTQ employees, veterans and people with disabilities. But Wyatt said “most focus on gender, ethnic and racial diversity.”

She stressed that the preparation of reports is an ongoing process. In the first round of disclosures, the information may be qualitative, she said, but the groundwork can be laid for more quantitative data in the years to come.

“Don’t assume that everything that is done today is enough for the future,” said Elizabeth Bieber, an attorney at Freshfields in New York.

Before disclosing data, companies should make sure it is “investment grade,” Wyatt said. In other words, organizations need to be confident that the disclosed figures are correct.

Team effort

Creating the required human capital information is a team effort, said Wyatt. Finance and Accounting should work with HRD, Investor Relations and Communications teams to determine what will be disclosed.

People in finance know how to report human capital information. Auditors know how to put in place controls to ensure the data is investor-grade. People in charge of human resources and diversity know what is presented to the board. Investor Relations understands investor expectations and the communications team will consider possible reactions to disclosures.

If there are topics that HR regularly presents to the board or CEO, or that a company regularly addresses in proxy documents or press releases, they can be important, Wyatt said.

“Disclosures are not required for proxies,” Wyatt said. But companies sometimes provide environmental, social and governance information in proxy statements, especially on diversity, equity and inclusion, she said.

A company may choose to provide human capital information in a corporate responsibility report; stand-alone report on diversity, equity and inclusion; on its website or in a press release, she added.

Elevate HR

According to Randy Samsel, president of eSearch Talent Solutions, an executive search, talent management consulting and career coaching services company in Cleveland, the Sarbanes-Oxley Act keeps CEOs and CFOs of listed companies personally responsible for the integrity of published financial statements and disclosures.

“This means that CEOs and CFOs are also personally responsible for misleading and incorrect disclosures,” he said. “Executives pay considerable attention to everything that is disclosed. By adding information on human capital reports, the HR function will have greater visibility at management and board level. “

While disclosures are a team effort, HR should take ownership of the development and communication of those disclosures, he said.

“For years the HR profession has been clamoring for a place at the table,” he said. “This is the opportunity for HR to take the lead in a very visible way.”


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