Council of Institutional Investors Urges SEC to Include Specific Human Capital Metric Disclosures in Company Annual Report
October 19, 2019
In a comment submissionresponding to the Securities and Exchange Commission’s proposed changes to how companies describe their businesses in their annual reports (Form 10-K), the Council of Institutional Investors (CII) has urged the SEC to expand reporting on human capital metrics (HCM), among other issues.
The comments were filed in response to a proposed rule the Securities and Exchange Commission issued in August which made changes to the business descriptions in company annual reports. Among the changes included in the proposal was a principles-based framework for human capital disclosure that effectively reminded issuers that human capital issues that are material need to be disclosed. The proposal, which is in line with most of Regulation S-K, allows companies to determine whether such a disclosure is material, and then if so, what information should be included. Notably, the SEC questioned whether example of specific possible disclosure elements should be included. Shortly after the publication of the proposal, Democratic SEC Commissioners Robert Jackson and Allison Herren Lee released a joint statement calling for specific line-item disclosures of human capital metrics – the opposite of the principles-based framework envisioned in the proposal.
According to CII’s letter, the group “generally supports” the principles-based approach to human capital metrics utilized in the proposal. However, CII also requests “expanding” the current disclosure human capital disclosure, which consists of the total number of employees, to include “a breakdown of the numbers of full-time, part-time, and contingent workers and disclosure of employee turnover rates.” Additionally, CII supports the SEC encouraging companies to provide voluntary human capital disclosures “preferably using a generally accepted, private sector, investor-focused framework.”