Corporate Governance

2020_Corporate Governance and Executive Compensation

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Shearman & Sterling LLP Preparing the Board for Human Capital Management Oversight and Disclosure | 27 HUMAN CAPITAL MANAGEMENT IN THE BOARDROOM Boards need a robust body of year-over-year human capital data to provide an effective and measurable method of oversight. Certain basic human capital data, like retention and turnover rates, may already be collected by some companies, and some boards may already review this data on a periodic basis. But these basic measurements do not provide the full range of human capital information needed for effective board oversight. To fulfill their oversight role, boards need more robust and more expansive human capital measurements, particularly those that will result in a body of year-over-year data that boards may use to track human capital management progress over time. Where should boards look to develop these human capital measurements? The human resources management team should identify for the board the human capital data that is already collected and tracked. As a process matter, this will require the company to establish a "board-ready" human resources management team member or other executive trained to report to the board on this issue if such a member of the team is not already in place. 69 1 of the Top 100 Companies have an executive officer with a title including the key word "Human Resources" or "Employee" or "People" or other key word indicating oversight of human capital management of the Top 100 Companies has an executive officer with a title including the key word "Diversity" Important Issues for the Human Capital Management Team to Address for the Board How were the particular categories and measurements of human capital selected, and how do they relate to the company's overall business planning and risk management goals? Do the categories of human capital data collected measure the entire workforce (including contract and temporary workers) or discrete sectors of the workforce? Do the categories of human capital data collected remain constant from year to year? What categories of human capital data are already collected? Does the data get benchmarked against peers? Executive Officers with Title Indicating Oversight of Human Capital Management The answer to this last question may be the most important. Not only is tying human capital management to larger business planning initiatives and risk management necessary for meaningful board oversight of those initiatives, it is also an important step in developing disclosure that meets the requirement of the new human capital management disclosure rule: to discuss, to the extent material, the human capital measures or objectives that management focuses on in running the business.

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