On a 3-2 vote, the SEC has finalized rules (see page 45) to both modernize and increase the effectiveness of the corporate disclosure process along lines advocated for by the Center.
In August 2019, the SEC published proposed rules that would amend how companies disclose human capital metrics. Specifically, the proposal required disclosure of any material human capital measures or objectives that management focuses on in managing the business, such as attraction, retention and development. The proposal stated the human capital disclosure will vary by industry and company, and rather than prescribe line item disclosures, companies should describe where management focuses its attention with respect to material human capital matters. The Center broadly agreed with the proposed changes and advocated for a principles-based approach.
The finalized rules adhere nearly word-for-word to such a principles-based approach. The rules do not have as many so-called line items to disclose, such as descriptions of specific numbers, beyond the requirement to report their total number of employees. Instead, companies are to share risks that they consider to be material using principles-based reasoning rather than hard-and-fast, prescriptive rules. Chairman Clayton stated his expectation is that such disclosures will include both quantitative and qualitative factors.
In dissenting, Commissioner Allison Lee criticized the new rules for not requiring specific disclosures on part time vs. full time workers, workforce expenses, turnover, diversity, and climate change risks. In response to later questions, the SEC expanded on the rule by stating companies should disclose information if they measure human capital metrics.