Corporate Human Capital Disclosures: Early Evidence from the SEC’s Disclosure Mandate | Harvard Law School Forum on Corporate Governance

This article shares findings from a textual analysis study of the human capital disclosures of over 3,000 unique public companies (i.e., all 10-K filers with corresponding financial data available). The analysis is based on disclosures during the first year under the SEC Human Capital (HC) regulation, which went into effect on November 9, 2020. The rule gives public firms governed by the SEC 60-90 days after their fiscal year to include HC information in their annual report. Since the reporting rule is principles-based—meaning that the SEC has given organizations broad latitude to choose which measures to include—the regulation has been criticized as not allowing investors to objectively compare the HC of different organizations. The study’s findings show disclosures are “extremely heterogeneous in terms of their length, numerical intensity, tone, readability, and similarity with peer firms.” About 18 percent of sample firms provide human capital disclosures of less than 100 words. Disclosures are not numerically intensive, except in firms with better financial performance, which provide more specific and quantitative disclosures. Overall, the findings suggest that the HC reporting of many organizations is unlikely to be adequate for investors who wish to understand a firm’s HC management practices. You can access the detailed report here. As organizations continue to evaluate which HC measures to disclose, I am resharing this bonus resource by American Progress, which includes 25 HC measures (towards the end of the article) to consider.