Corporate Governance

Shearman & Sterling LLP 9 | The Management and Disclosure of Human Capital Resources Requires a Roadmap WHERE WE ARE GOING AND HOW DO WE GET THERE With the information able to be gleaned from a year of disclosure under the new rule, how should companies approach crafting human capital resource management disclosure that meets the obligations of the rule and helps stakeholders understand how this critical asset is managed? Form a Team Companies need a system in place to tackle this disclosure — a system of people to manage and oversee human capital resources and data collection and analysis. The individuals that are responsible for managing human capital resources are crucial to the process of preparing meaningful disclosure. These individuals should be identified and integrated into the disclosure preparation process. Companies should also determine how the human capital management team will address human capital matters with the company's board. Boards, together with management, should decide how the board will oversee human capital management issues, specifically, whether these matters will be brought in the first instance to the full board or a committee of the board. Companies are increasingly placing human capital management oversight responsibility with the board's compensation committee (which some companies have renamed the human capital management committee or similar) or the nomination and governance committee (often in the case of companies that are approaching human capital management as an integrated aspect of comprehensive ESG oversight). Keep in mind that new approaches to human capital management oversight may require changes to corporate governance guidelines or committee charters, as well as appropriately updating company websites to reflect such adjustments. Set Measurable Human Capital Management Objectives Companies should develop clear human capital management measurements and objectives and share and discuss these objectives with their boards. Human capital resource management disclosure should describe the aspects of human capital resources the company measures, why those measures are tracked and what goals the company has with respect to those measures. Disclosure should address whether the company has met its objectives and, if not yet met, where the company is on its path to achievement. It is helpful to include specific data points and describe programs that the company has implemented to achieve its objectives. Companies should also expect to be held accountable for progress toward their goals and should be careful not to promise the achievement of unrealistic goals. Further, if goals are being revisited and revised, companies should discuss why these adjustments have occurred. In order to make these disclosures, companies will need to determine what it means to attain specified goals, especially for broader goals, and how to track progress. Questions to consider: Who in the organization is responsible for managing our human capital resources? Is it a chief human resources officer? Is it a shared role between an executive and the general counsel's office? Should the team include outside advisors, from a legal and consultancy perspective, to advise on human capital management, much like the role advisors have historically played in the context of executive compensation? Questions to consider: What is the company's philosophy with respect to human capital resource management? How do the measures presented contribute to a cohesive approach? What is the company going to do differently in the coming year if goals have not been achieved? How will the company consider what it did last year and whether that approach is still right for the company?

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