In August of 2020, the SEC adopted rules to amend the business description (item 101), amongst other things. As part of this amendment, the SEC requires companies to describe the company's human capital resources to the extent that this disclosure is material to help investors understand its business. While this disclosure requirement recognizes that company performance may be correlated with employee morale, some suggest that the principles-based rule gives management too much discretion to determine what gets disclosed and permits inconsistencies in disclosed information across companies. Commissioners Allison Herren Lee and Robert J. Jackson, in a joint statement echoed these concerns.
We want to start by noting that the proposal is commendable for adding disclosure on the critical topic of human capital. This reflects an understanding of what American families have known for generations: companies that invest in their workers perform better over time. Robert J. Jackson, Jr. and Allison Herren Lee on Proposed Changes to Regulation S-K
Get a Head Start to Comply with the New Rules
As companies come up for air after the Q3 filings period and prepare for the 10-K filing season, getting a head start to complying with human capital resources disclosure will be critical. One way is to research how other companies are already discussing their human capital resources. Although "Business Overview" (Item 1) is not required to be tagged as a text block using XBRL, at idaciti, we have leveraged the XBRL framework to 'XBRL-ize' the unstructured portions of SEC filings. By doing so, we enable companies and investors to efficiently conduct text searches within the Business Overview section of the document and research how companies discuss their human capital resources.
What have Companies Disclosed So Far?
Based on current analyses, we are already seeing that companies are disclosing various topics related to human capital. The topics range from more obvious metrics like diversity and inclusion, talent acquisition, development, and retention to more qualitative information related to corporate culture, resources available for employee health and wellness during Covid-19, and corporate citizenship.
Here are selected real-world examples of human capital disclosures.
Diversity and Inclusion
Talent Acquisition, Development and Retention
Resources for Health and Wellness during COVID-19
Community Engagement and Corporate Citizenship
Disclosing how your company treats its employees is becoming more critical as investors include these necessary signals into their investment decisions. You can see from the selected examples above the breadth of human capital-related topics being disclosed across companies. Since there is no standard 'checklist' of what should be included, researching (and staying on top of) how other companies disclose their human capital will be a critical step to drafting your disclosure. Find a solution that helps you stay abreast of disclosure trends… 24/7, and do all the heavy lifting, so you don't have to.