Corporate Governance

Shearman & Sterling LLP The Management and Disclosure of Human Capital Resources Requires a Roadmap | 10 Identify Business Priorities and Strategies Companies, together with their boards, need to assess human capital management specifically in the context of the company's business plan and priorities. It is key to meaningful human capital resource management disclosure to not just describe the company's human capital resources, measures and objectives, but to situate these into a description of the company's long-term objectives and strategies. After reviewing a company's human capital resource management disclosure, shareholders and other readers should be able to discern how the company's employees and approach to employee engagement progress and support the company's business plan. The focus of the disclosure is rooted in an explanation of the company's business and how people, as a critical asset of the business, are managed in that framework. Questions to consider: How does the company support its people to achieve business objectives? As business objectives and strategies evolve, for instance in response to particular changes raised by the global pandemic, how does human capital resource management and measurement evolve in response? Does the company provide training and development opportunities for its employees to further the company's business plan? How does employee recruitment and talent retention factor into the achievement of long-term goals? What does the company do to promote the health and safety of employees, and how does that align with a sustainable company? Are compensation programs designed with specific business plan objectives in mind? THE ROADMAP By forming a team, setting measurable human capital management objectives and identifying business priorities and strategies to situate those human capital management objectives, companies can set out a roadmap for drafting effective human capital resource management disclosure and continuing to develop the systems behind human capital management itself. Oversight and accountability are the watchwords to consider as human capital resource management disclosure develops. The board (or an identified committee) should be fully engaged in the development of human capital management priorities to ensure continued alignment with strategic planning and enterprise risk management. Disclosures should be reviewed by the board (or an identified committee), reflective of the company's business and supported with specific data and actions, coordinated with other information presented by the company (such as in corporate social responsibility reports) and monitored year-over-year with a view toward the company's growth and development in this area over time. What's Down the Road Further human capital resource management disclosure rules, in particular rules mandating specific quantitative disclosures or consistent metrics across industries, may be coming. On June 23, 2021, SEC Chair Gary Gensler, in prepared remarks addressing "key areas of the reform agenda" at the SEC, noted that he asked SEC staff to put together recommendations for further mandatory company disclosures on human capital. Gensler explained that this "could include a number of metrics, such as workforce turnover, skills and development training, compensation, benefits, workforce demographics, including diversity, and health and safety." A requirement to disclose specific human capital measurements would represent a significant shift from the current principles-based rule. The need for companies to adjust to this shift and the potential for further human capital resource management disclosure rules may make the strategies and roadmap discussed in this article all the more important.

• Cover