Boards Take Note: Workforce Data Disclosure On SEC’s Radar

Investors are making the case that these issues can have material impact on a company’s bottom-line. Boards should be ready.

The continued emphasis on ESG concerns by investors and regulators could soon intensify as news reports suggest that the SEC is considering a new rule that would require companies disclose additional data on their workforces. While few corporate boards will rejoice over having to produce a new set of required disclosures, the SEC’s focus on “human capital” reflects the concerns investors have about how companies have handled issues like layoffs, pay equity, worker safety, work from home policies and re-staffing for the future. Investors are making the case that these issues, and others like them, can have material impact on a company’s bottom-line. As boards attempt to devise strategies that will allow them to successfully emerge from the Covid-19 pandemic, decisions regarding human capital take on added importance.

We’ve seen evidence of the impact human capital decisions can have on company performance already this year: Spirit, American and other airlines canceled thousands of flights over the summer partly because they didn’t have enough staff to operate the planes. Goldman Sachs and other financial institutions were almost forced to raise wages after junior employees complained of unfair conditions leading to burnout. Employees at a number of companies have threatened to quit unless flexible work-from-home policies enacted during the pandemic are continued. Corporate boards may want to examine how ESG issues like these might impact their current business strategy.

To be fair, many of these worker-related issues have not been a major concern for boards in the past, so adjusting to these new realities could open up new perspectives. If a board has not fully considered how workforce management could have a material effect on company performance, now is the time to explore the topic. A thorough examination of this area with the CEO and management team may be in order.

Among the questions to be addressed: How critical is human capital to the company’s bottom-line? Which information regarding the workforce does the board consider truly material to the business (and why)? Are there any risks in publicly disclosing certain workforce-related information? What is the best way to disclose information about critical workforce-related issues?

It is hard to imagine how a company can successfully plan for its growth without dealing with workforce-related issues and sharing much of its strategy with investors. The difference today is that many of these workforce-related concerns are amplified in the media, creating additional pressure on boards. Companies that are interested in good governance regularly share information that is material with investors—this information, although new in some cases, should be shared as well. The question is which type of information should be shared and when.

Reportedly, the SEC is still deciding which metrics it may want to mandate be disclosed. Among the information under consideration is data on diversity, employee compensation, worker safety, and employee hiring and retention. If companies feel it is in their best interest, they may want to consider developing credible arguments against disclosing that data, but developing a plan for disclosing the data if mandated to, is probably a good idea as well. If the data is deemed material, then shareholders have a right to know. Since a company can’t run without its employees, at least some of the workforce data must be material. While what is deemed material may be different for individual companies, some disclosure seems inevitable. It’s probably advisable that boards voluntarily decide what is material and should be disclosed before the SEC does.