Corporate Governance

Shearman & Sterling LLP 30 | Preparing the Board for Human Capital Management Oversight and Disclosure In addition, in describing the focus of these committees, even where the committee name has not changed, the proxy statements of many of the Top 100 Companies indicate a scope that expands well beyond executive compensation. Examples of the most common areas of committee focus in addition to executive compensation are shown to the right. HUMAN CAPITAL MANAGEMENT IN PUBLIC DISCLOSURE Developing a robust body of year- over-year human capital data is important not only for effective board oversight of human capital management, but also for approaching the newly required human capital management disclosure. The new disclosure rule resulted, in significant part, from increasing calls over the past few years for mandatory human capital management disclosure. Select examples include the HCMC petition to the SEC for rulemaking requiring human capital disclosure; the views expressed by SEC Chairman Jay Clayton to the SEC Investor Advisory Committee that human capital is, for some companies, a "mission-critical asset" and by the SEC's Investor Advisory Committee in turn that human capital is the "primary source of value" of many of the most dynamic U.S. companies; and BlackRock's identification of human capital management as an engagement priority and an important investment issue. 4 These developments have significantly influenced the adoption of a new disclosure rule requiring public companies to describe, to the extent material to an understanding of the company's business taken as a whole, the company's human capital resources, including the number of employees and any human capital measures or objectives that the company focuses on in managing the business. Importantly, the rule is not prescriptive and is principles- based, leaving it to the company to determine what human capital resources are material to the company and its particular circumstances. This means that the rule does not require companies to disclose any particular human capital metrics or measurements (other than number of employees, if the company determines that metric to be material to an understanding of the company's business as a whole). While this approach is not unexpected, it is likely to be viewed as inadequate by many public commenters who supported more prescriptive, and from their perspective, rigorous, requirements and the mandatory disclosure of 4 Letter to William Hinman, Director, SEC Division of Corporation Finance, from the Human Capital Management Coalition (July 6, 2017); Chairman Jay Clayton, Remarks to the SEC Investor Advisory Committee (March 28, 2019); Recommendation of the SEC Investor Advisory Committee, Human Capital Management Disclosure (March 28, 2019); BlackRock, Commentary, Investment Stewardship's Approach to Engagement on Human Capital Management, https://www.blackrock.com/corporate/about-us/investment-stewardship#engagement-priorities. 19 13 5 3 10 8 26 Succession planning Diversity or diversity and inclusion Talent development or talent management Human capital or human capital management Culture Retention Pay equity Additional Areas of Focus for Committee Focused on Executive Compensation

• Cover