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House Committee Votes to Require Human Capital Disclosures

Based on the partisan committee vote, this new human capital disclosure law applying to public companies proposed by Democrats is unlikely to become law under current circumstances, but it indicates growing interest in the topic of human capital disclosures. European Union countries and Great Britain already have human capital disclosure requirements for all companies above a certain size. 

The House Financial Services Committee voted to advance legislation led by Rep. Cindy Axne, Dem., Idaho, to require public companies to disclose information about their workforce management policies, including investments made in training, safety, and employee retention.

The Workforce Investment Disclosure Act was approved by a vote of 33 to 25 and moves on to the House floor for consideration by the entire house.

WarnerSen. Mark Warner (D-VA), a member of the Senate Committee on Banking, Housing, and Urban Affairs, recently introduced a similar measure in the Senate.

The legislation would require public companies to disclose basic human capital metrics, including workforce turnover rates, skills and development training, workforce health and safety, and compensation statistics. The Securities & Exchange Commission proposed human capital disclosure requirements last year which are still under consideration. 

Axne“When I meet with companies nowadays, they tell me that their people are their greatest asset – but our businesses’ public disclosures don’t cover the investments they’re making in their employees. With this legislation, we can gain a better understanding of what companies are doing to improve and protect their most valuable asset,” says Rep. Axne, in a statement published by the office of Sen. Warner. 

Explains Sen. Warner, “As our nation continues to evolve and our economy becomes more knowledge-based, workers are easily becoming the most valuable asset a company can have. In fact, there’s a growing body of research that establishes a relationship between measurable human capital management – the way that companies manage and support their employees – and long-term financial performance,” says Sen. Warner. “When a business invests properly in its workforce, it boosts the company’s ability to innovate and compete. Companies should be required to disclose exactly how they’re investing in their labor force.”

The statement from Warner goes on to say that “the rise of service and intellectual property-based businesses has made current asset disclosure requirements insufficient to provide investors needed clarity. In 1975, more than 80% of the S&P 500’s market value was in companies’ tangible assets like real estate holdings or purchased equipment. By 2015, tangible assets accounted for less than 20%.”

The statement makes reference to the major investors BlackRock and State Street Global Advisory that are emphasizing the importance of human capital and which have “have indicated the need to create standardized reporting. In addition, research from the Embankment Project on Inclusive Capitalism, a partnership between asset managers directing $30 trillion and large public corporations, found US companies that disclose their total human capital costs outperform those that don’t.”

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