The cover story for the November 2011 edition of CFO magazine, “Power from the People,” introduced a topic that had been discussed among human capital experts for some time but had been the subject of little media coverage. The discussion was about whether investors and other stakeholders would benefit if publicly held companies reported more information about their work forces.

Human capital “disclosure” had been mostly limited to executive compensation data, executive succession plans, and perhaps a headcount total. If people were indeed a company’s “most important asset,” as so many executives said, shouldn’t investors have more information about them?

There’s a lot of gettable information that could help with investment decisions. What’s the turnover rate? What’s the breakdown on human capital spending for salaries and benefits, for training and development, for contract workers? How about some detailed data on employee engagement? Might there not be some human capital-related risks that warrant disclosure?

Few CFOs wanted to provide input for the article. It’s not hard to understand why: of course investors would benefit from access to such information, but taking a public stand on the issue presented complications. Companies normally aren’t keen to disclose much they’re not required to, yet publicly criticizing calls for more transparency in the human capital arena likely wouldn’t be an enthusiastically received sound bite. The sprinkling of finance chiefs who did go on the record acknowledged the potential benefit to investors but decried the prospect of additional disclosure burdens.

In some ways, the discussion hasn’t moved too much in the past four-plus years. There is still a paucity of human capital disclosure. But there have been some developments.

Regulations promulgated to address provisions of the Dodd-Frank Act were released, requiring public companies to disclose the ratio between their CEO’s compensation and that of the company’s median-earning worker. More importantly, some institutional investor groups are now starting to appeal directly to companies to expand their human capital disclosure and having some initial success.

On the other hand, while some of the most ardent supporters of additional disclosure foresaw — perhaps fancifully — a future in which regulators would mandate it, that element of the discussion has abated. If enough investors get on board the bandwagon, heightened disclosure might well become, if not a formal requirement, a de facto one.

This package of articles for our latest Square-Off debate features two that make strong cases for disclosure and two others that, while they agree with the premise, point out some practical considerations that argue for limiting the amount of disclosure.

Enjoy!

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2 responses to “Should Companies Expand Human Capital Disclosure?”

  1. I’m all in… as long as HR has to compile the disclosures.

    Signed,
    Your friendly neighborhood corporate CPA!

  2. Oh, this might even result in HR meeting their company’s outside auditors for the first time! I can see it now:

    Auditor: Hi, John (HR staff member), I am just following up on our employee turnover confirmations, we sent out 250 but got back only 3, of which none identified the reason for their departure. So, we need to do some alternative procedures on all 250 to verify your regrettable turnover rate.
    (John faints)
    Auditor: John, are you okay? All I need is for you to provide me a spreadsheet with the 250 names and note whether their departure was regrettable or not.
    John: Spreadsheet, did you say spreadsheet?
    (John faints again)
    Auditor: Can someone please show me to the accounting dept?

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