A group of institutional investors has petitioned the Securities and Exchange Commission (SEC) to ask corporates to make more human capital-related disclosures, considering that human capital management has a bearing on a company’s financial performance and shareholder returns.
The global group of 25 investors with a $2.8 trillion asset base, the Human Capital Management Coalition, is looking for enhanced disclosures on companies’ human capital management practices, policies, and performance. Currently, the SEC only requires companies to disclose their employee headcount. Investors are left to their own resources even to figure out input on how much a company spends on its workforce annually.
“As institutional investors and asset managers, members of the HCM Coalition have a vested interest in ensuring that the companies in which we invest are positioned for sustainability and growth over the long-term,” said Meredith Miller, chief corporate governance officer for the UAW Retiree Medical Benefits Trust. “The ability to effectively harness and apply the collective knowledge, skills, and experiences possessed by each individual in the workforce is essential to long-term value creation and is therefore material to investors evaluating a company’s future performance. Current disclosures leave investors with an incomplete picture of how well companies are seizing opportunities and managing risks.”
In their petition to the US capital markets regulatory authority, the investors cite, among other examples, a report by the Harvard Law School Pensions and Capital Stewardship program that finds human capital management policies lead to better financial performance by companies. The report looked at 92 studies that investigated various investment metrics that investors use, such as shareholder return, return on assets, and profitability.
Companies that make investments in staff training, health and safety measures, employee engagement, workforce diversity and inclusion, and staffing measures are likely to benefit from a lower employee turnover, a higher level of productivity, and higher levels of consumer satisfaction, the investors say. On the other hand, bad human capital management practices could result in risks to a company’s reputation and lead to lawsuits, impairing its stock performance.
The investors view the following broad metrics as providing input for human capital analysis:
- Employee demographics
- Stability of workforce
- Composition of workforce
- Employee skills
- Workforce culture and empowerment of employees
- Health and safety of employees
- Employee productivity
- Human rights
- Employee compensation and incentives
“Human capital management, done well, means investing in people in ways that allow them to develop and apply their talents to the organization,” said Tim Goodman, director, Hermes EOS. “A company that treats human capital as a vital asset, instead of a cost to be minimized, is not just a good corporate citizen – it is a good investment.”