Annual Corporate Governance & Executive Compensation Survey

2019 Corporate Governance & Executive Compensation Survey

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Shearman & Sterling LLP 38 | Human Capital Management Disclosure THREE STEPS TO DEVELOPING A HUMAN CAPITAL MANAGEMENT (AND DISCLOSURE) APPROACH In approaching human capital management (and related disclosure), we suggest public companies consider the following three steps. "Understand the lens" (in the words of SEC Chairman Jay Clayton) through which the company looks at human capital. 13 Not only, as Chairman Clayton pointed out, should any human capital management disclosure approach apply the "lens" through which the company looks at human capital, the company's human capital management approach itself should begin with a clear understanding of that "lens." Each company's "lens" requires individualized crafting as the contours will vary from company to company and in different industries and geographies. Companies must consider such questions as, is human capital among the primary concerns of the company, or is it an ancillary one? How does the company approach human capital — as an independent item to be focused on, or is it integrated into discussion of the larger picture (for instance, culture, or long-termism, or risk)? What aspects of human capital — diversity, training, turnover — matter most to the company? Construct an aligned human capital management strategy. This buildout will initially depend on identifying the groups that are responsible for its construction. Senior management and the board should be key among those groups. Management's role in developing human capital should be clearly defined by identifying who in management will be responsible for the strategy. Should the CEO be reimagined as a "Chief Talent Officer"? Should the Chief Human Resources Officer be elevated to a strategic management role? 14 As with culture, it is important to add human capital management to the board agenda; as BlackRock noted in its human capital management engagement commentary document, "HCM is both a board and a management issue." 15 From here, a company should determine whether adding human capital management oversight as a core responsibility of a selected committee aligns with its "lens;" some of the Top 100 Companies have done just that. 16 Doing so will not only result in a board that is better able to develop human capital and manage human capital risk, but will also signal to stakeholders that effective human capital management is an issue the board is fully engaged on. 13 See Chairman Jay Clayton, supra note 2. Determine if, and what, to disclose. Even a company that follows steps 1 and 2 is under no current obligation to disclose it. Determining if, and what, to disclose is a company-by- company consideration. For any company, though, disclosing the "lens" through which the company looks at human capital, and the basic structures of human capital management that the board and the company have built, will allow the company to proactively, and on its own terms, provide the marketplace with the basic human capital management information that many influential stakeholders have called for. 14 See Ram Charan, Dominic Barton & Dennis Carey, "People Before Strategy: A New Role for the CHRO," Harvard Business Review (July – August 2015). 15 See BlackRock, supra note 6. 16 See, e.g., McDonald's (Public Policy & Strategy Committee); Wells Fargo (Human Resources Committee). 1 3 2

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