Human Capital Reporting Is Good Business

People analytics make it easier to disclose

Despite new SEC regulations requiring companies to disclose more about their human capital resources and measures, Harvard Law found that 17 of the 100 organizations that have filed made no statement about their people.

Whilst this may look like a low-risk approach (e.g. if we say nothing we can’t be wrong!), it’s likely to generate a negative view from investors when taken in context with all the disclosures from competitor companies. Think about it: If the other 83 organizations that filed can report on their headcount and diversity, then why are you not able to make the same statements?

It isn’t uncommon for companies to be unable to report on their people data because of immature capabilities in this area. In fact, a 2019 HR.com report found that 26% of organizations were poor or very poor at making sense of their people data. These SEC requirements increase the need to invest in improving your people analytics capabilities – or your company risks fallout from investors and customers.

When these new rules went into effect in November 2020, Russell Klosk of Accenture and I wrote at length about the impact of these changes on the CHRO and CFO. We celebrated the fact that people were now elevated to their rightful place as a core driver of business success. However, the number of companies that reported nothing about their human capital shows that there is still a lot of progress to be made.

When it comes to providing hard data about the actual state of human capital in the organization, the overall performance is substantially lower–57% of all respondents provided no quantitative information at all in their disclosure. Of the measures that were disclosed, the top 3 were gender diversity, ethnic diversity, and turnover.

The lack of quantitative data in the human capital disclosures, the Harvard Law study authors found, is an area of concern. “[The] new HCM disclosure appears to contribute to the length but not the informativeness of 10-K disclosures,” said the authors.

The reason for this view is that generic statements about your company’s intent or plans have little relevance in assessing whether or not your workforce is being well-managed. Furthermore, when you can’t show the impact of your people on business results, investors may choose to avoid or discount stocks as a sign of your organization having a poor understanding of your people. And it’s not just investors you alienate when you can’t accurately report on your people.

According to the latest Edelman Trust Barometer, 68% of the population expect CEOs to step in to solve societal problems when governments fail to do so. It makes good business sense for organizations to be more transparent about their actions to remove bias and systemic racism. The majority of people who are paying for your product or service expect you to lead the way in driving changes in this area. A failure to act, or communicate about your actions, could have a material impact on revenues.

Of the companies that did disclose their human capital measures to the SEC, the range of topics their filings covered is an encouraging sign for people analytics. It highlights the breadth and sophistication that already exists around using people data to shape business performance.

For example, after headcount, the most commonly reported items were diversity objectives and measures. The information shared here ranged from generic statements of intent to specific measures related to the representation of women and ethnically diverse groups across the organization.
 
Other areas that were reported include obvious items like compensation, to more sophisticated topics like pay equity and succession. The few companies that disclosed their position relative to these last two likely have a good understanding of how people affect their business results.

Because the risks associated with pay equity are well-documented and often public, knowing where an organization stands on this brings confidence to investors wanting to put their money into fair and equitable companies.

Fortunately, those organizations with a competent and experienced people analytics practice will be best placed to manage the risks and rewards of the new disclosure requirements.

The focus on people and their impact on the business is not going away any time soon. Investor groups, such as CalSTRS, who advocated for these new SEC regulations, likely won’t be satisfied with the human capital information that’s been shared so far.

These groups may choose to discount stocks from those companies with poor people disclosures or seek financial redress when a human capital issue, such as pay equity, reduces the value of their shareholding.

Only time will tell what actions they’ll take to make sure companies start making their people matter in these reports.

The article was originally published here.