New SEC Disclosure Rules (and What It All Means)

NEW SEC DISCLOSURE RULING

What are the new SEC rules, and what does it mean for corporates and investors?

Today, we’re talking about the new SEC human disclosure ruling: what it is, how it came to be, what it means for public companies, and the current human disclosure reporting landscape.

With the proposed SEC ruling on human capital disclosures, human capital measures and workforce disclosures have been a hot topic. But what does the proposed ruling actually mean for the state of disclosures, and what does the current reporting landscape look like? 

What is the SEC ruling?

First, some background:

On Aug 8, 2019 the SEC voted to propose rule amendments, and in August 2020, the SEC adopted rules requiring companies to disclose human capital risks and resources. Before this, public companies were only required to disclose their number of employees per Regulation S-K Item Item 101(c)(1)(xiii). However, there was minimal to no guidance about what actual human capital information should be disclosed.

In July 2023, the Financial Accounting Standards Board (FASB) proposed mandating that companies disaggregate the reporting of major operating costs and show employee compensation costs.

On Sep 14, 2023 the SEC Investor Advisory Committee (IAC) released a draft recommendation that amends and strengthens the current rule. The IAC met on Sep 21st to discuss this (view the webcast here). The draft largely mirrors a petition from a group of academics and former government officials.

The committee is targeting October 2023 for the proposal to be released with a typical 60-day comment period. Based on the timeframe from 2019-2020 we would expect the rule to be adopted in late 2024.

 

What does this mean?

 

This proposal would increase and standardize human capital reporting for public companies. Specifically, the disclosure recommendations are: 

  1. The number of people employed by the issuer, broken down by whether those people are full-time, part-time, or contingent workers;
  2. Turnover or comparable workforce stability metrics;
  3. The total cost of the issuer’s workforce, broken down into major components of compensation; and
  4. Workforce demographic data sufficient to allow investors to understand the company’s efforts to access and develop new sources of talent, and to evaluate the effectiveness of these efforts (this information may include diversity across gender, race/ethnicity, age, disability, and/or other categories viewed as important to investors and relevant to the business).

What does the company human capital disclosure landscape look like, and how has it changed?

 

As we reported in our State of Human Capital Disclosure Trends report, there has been a trend toward more reporting, more granular disclosure, more consistency, and more standardization over the past few years, and most of this reporting has been voluntary. 

While human capital reporting has increased slowly over the decades, we’ve seen a huge shift towards transparent reporting in the last few years. For example, nearly half of S&P 500 companies disclose the individual race/ethnicity of each board member – up from less than 7% in 2020!

However, overall, there is still a lack of consistency in how and where human capital data is reported, making it hard to compare companies’ disclosures.

DiversIQ has been collecting, storing, and analyzing companies’ human capital disclosures since our inception.

If you’re concerned about the upcoming transition, we’d love to meet and discuss how we can help. 

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