Human Capital Emerges as Key Governance Issue

February 10, 2020

Following the SEC’s August 2019 proposal to amend Regulation S-K to include human capital resources as a disclosure topic under Item 101(c), human capital management has emerged as a hot topic in the world of corporate governance and should feature prominently on boards’ agendas in 2020.

SEC Chairman Jay Clayton stressed the importance of human capital to performance in his December 10, 2019, testimony before the U.S. Senate Committee on Banking, Housing, and Urban Affairs. “In my experience, many of the companies that have performed well over time have focused on monitoring and improving their human capital … In addition, as the domestic and global economies have evolved, the importance of human capital to performance and, accordingly, investor decision making in higher growth sectors appears to have increased.”

Several recent publications addressing what boards should be focused on in 2020 have recommended an increased focus on human capital management. For example, in Eight priorities for boards in 2020, the EY Center for Board Matters (EY) states that boards should “oversee the company’s strategy for workforce agility and related cultural initiatives to address broad impacts on business and the workforce, plan for change and future skills, diagnose and realize diverse workforce potential, and drive leadership development and adaptability.”

One concrete recommendation from EY is for board members to have some direct interaction with lower-level employees. With respect to executive employees, a recent Forbes article stresses the importance of succession planning and ensuring there is a “ready to go emergency CEO on the bench.”

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