SEC Human Capital Disclosures: The Moment the HR World Has Been Waiting For

HR leaders are now in the spotlight – but that’s not a bad thing. What opportunities do the new disclosures open up, and what should you do about it?

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By Adam Etzion, HR Analyst @ Gloat

February 3, 2021

We’ve previously covered the new SEC human capital disclosures and what they may mean for publicly traded companies – but what do they mean for HR professionals, and CHROs, specifically?

In a conversation I recently held with a senior HR thought leader, I asked how CHROs are likely to view these new requirements.

The answer I got was simple: “Probably as a chore.”

And that’s understandable.

With the focus and light of the new SEC disclosures shining on them, CHROs suddenly have an entirely new type of responsibility on their hands, and with it, a new form of pressure. Investment-grade reporting is a skillset that needs to be learned, and a task that has very direct ramifications for companies’ bottom lines; a good report can significantly increase investments (and the value of the company’s stocks) while a bad one can have the opposite effect.

The weight of the responsibility can be a little paralyzing, and wanting to minimize its impact and remain as conservative as possible with the disclosures is a natural knee-jerk reaction.

But while taking on a conservative “first, do no harm” approach can be tempting, the new SEC regulations also offer a hidden opportunity for the more daring.

The CHRO’s Time to Shine

It’s true that with the new disclosures, CHROs are experiencing increased pressure to deliver – but with that pressure, other decisionmakers in their companies are also more attentive to what they’re doing. So while your CEO may not have greenlit that amazing D&I project you’ve come up with, suddenly, with lights shining on the HR department, they may reconsider.

But the new SEC guidelines are more than just added leverage CHROs can now use.

They’re an opportunity to sit down at the “big kids’ table” alongside CFOs and COOs, and claim an equal part in the steering of the company.

But to do that, CHROs need to be ready with the relevant data and insights – and with the tools that provide them.

Why Human Capital is an Indicator of Company Value

With their decision to broaden companies’ reporting on their human capital, the SEC is signaling to companies and investors alike that the value of an organization is directly tied to their workforce – and to the way the organization interacts with it.

While that may seem like a trivial conclusion, it’s worth unpacking.

As markets – and the world – become more dynamic and changeable, the value of a company will cease to be tied to what the company produces – be it physical goods, or services, software or information – and will have more to do with what a company can do, and how it can pivot in response to fluctuations in demand, technology and the economy.

The equipment and infrastructure at a company’s disposal are still relevant to their ability to react to change, but their most important resource is human in nature.

How a company treats that resource – and, more importantly, whether it provides it with the right conditions to change, adapt and grow – is a huge indication of that company’s ability to survive and thrive in the dynamic reality we now inhabit.

The new regulations are meant to allow investors a closer look at what companies are doing to remain resilient, flexible and adaptable – and that means CHROs have an unprecedented opportunity to meet this challenge by implementing long-awaited changes to the way the company interacts with its workforce.

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Moving the Needle

CHROs working on disclosures now face two challenges.

The first is to create reports that reflect their company’s Human Capital reality both truthfully and accurately; no small task, when creating investment-grade documents. While CFOs and COOs may have tools that allow them to generate these reports at the click of a button, CHROs still have to do much of the work manually – not to mentions understand which parameters they need to report on in the first place.

But that’s only the first challenge HR professionals now need to address.

Once the metrics and parameters they choose to report on are selected, they face an even greater task: moving the needle on those parameters to show a marked quarter-over-quarter and year-over-year improvement.

How can HR leaders address this?

It may require a new HR paradigm – and it will definitely require new tools.

Whatever CHROs decide to do, though, it’s important to remember: the SEC Human Capital Disclosures are an opportunity to be leveraged – not a chore to be minimized.

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