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Human Capital Management Disclosure is Crucial for Gaining Investor Trust

Posted on Mar 5, 2025

The growing acknowledgment of human capital as a vital asset has led to an increased focus on human capital management (HCM) disclosure. This trend is fueled by the demands of investors, regulators, and stakeholders who seek greater transparency into a company’s workforce and its impact on overall performance. As organizations navigate an increasingly complex business landscape, the management of human capital has emerged as a key driver of sustainable success.

 

What is Human Capital?

Human capital encompasses the collective knowledge, skills, creativity, and experience of a company’s workforce. It is an intangible asset that fuels innovation, productivity, and competitive advantage. Managing human capital effectively is crucial for achieving long-term business success. Unlike physical assets, human capital is dynamic and can be developed over time through training, mentorship, and experience.

 

Why is It Important for Companies to Disclose Information About Human Capital Management?

Disclosing information about human capital management gives investors valuable insights into a company’s ability to attract, develop, and retain talent. This data helps investors evaluate the company’s growth potential, risk profile, and sustainability. Moreover, strong human capital management practices can enhance a company’s reputation and help attract top talent.

Investors are increasingly prioritizing Environmental, Social, and Governance (ESG) criteria when making investment decisions. Effective human capital management is vital to ESG’s “Social” component, impacting employee well-being, diversity, and labor relations. Companies that disclose human capital practices attract investors prioritizing sustainability and ethical governance.

 

Assessing the Value of Your Workforce: Key Metrics

To assess the value of your workforce, focus on these key performance indicators (KPIs):

  • Employee Productivity and Performance: Evaluate individual and team performance to measure efficiency and output.
  • Talent Acquisition and Retention: Track hiring costs, time-to-hire, and employee turnover to assess recruitment and retention effectiveness.
  • Skills and Competencies: Analyze skill gaps and the effectiveness of employee development programs.
  • Employee Engagement and Satisfaction: Measure employee morale, job satisfaction, and commitment through surveys and retention rates.
  • Alignment with Business Strategy: Ensure that the workforce’s skills and competencies align with the company’s strategic goals.
  • Financial Impact: Calculate the return on human capital and the costs associated with employee turnover.

By combining these metrics and analyzing them in conjunction with other relevant factors, you can gain a comprehensive understanding of the value your workforce brings to your organization.

 

SEC Proposed Rule on Human Capital Management Disclosure

The Securities and Exchange Commission (SEC) has proposed rules requiring public companies to disclose information about their human capital resources. The proposed rule, which was released in early 2020, aims to provide investors with more consistent and relevant information about a company’s workforce, including its composition, turnover, employee development, and diversity and inclusion efforts.

This regulatory development reflects a growing recognition of human capital as a critical component of corporate performance. According to the SEC’s proposal, companies would be required to describe their human capital resources “to the extent such disclosure is material to an understanding of the registrant’s business” (SEC, 2020). This approach emphasizes that effective management of human capital is essential for achieving long-term business success and sustainability.

The SEC’s move towards increased human capital disclosure aligns with broader trends in corporate governance and accountability. As noted in a report by the Business Roundtable, investors are increasingly prioritizing Environmental, Social, and Governance (ESG) criteria when making investment decisions, with a strong emphasis on workforce management and employee well-being (Business Roundtable, 2019).

The SEC mandates disclosures to boost transparency and help investors make informed investment decisions. This initiative fosters a corporate culture prioritizing financial performance and workforce well-being, driving innovation and competitive advantage.

 

Conclusion

Human capital management disclosure is increasingly critical as investors recognize the essential role of people in driving business performance. By transparently sharing information about their workforce, companies can build trust with investors, attract and retain top talent, and strengthen their overall reputation. As regulatory requirements evolve, companies must adapt their human capital management strategies and disclosures to meet stakeholder expectations. By embracing human capital management disclosure, companies can position themselves as leaders in their industries, fostering a culture of accountability and continuous improvement.

Please reach out to Alex Chapman at achapman@pinnaclefundservices.com or 1-203-308-4690 for more information about how to improve your HCM Disclosure.