[author: Andrew Cox]

In August 2020, while most of us were thinking of ways to modernize our new work-from-home office/kitchen combo to avoid going stir-crazy, the SEC adopted various amendments to Regulation S-K in an effort to modernize disclosures. As part of their efforts, Regulation S-K now requires:

[a] description of the registrant’s human capital resources, including the number of persons employed by the registrant, and any human capital measures or objectives that the registrant focuses on in managing the business . . . .

17 C.F.R. § 229.101(c)(2)(ii). Interestingly, the SEC decided against defining “human capital resources,” leaving it up to the individual registrant to decide the phrase’s meaning for themselves.

After having the opportunity to review several 10-Ks with the new and improved human capital resources disclosures, I noticed a trend that most disclosures provided more detail than expressly demanded by regulation. Typically, their disclosures went far beyond merely stating the total number of employees each registrant employed. For example, the registrants often broke down the number of employees into various categories, such as full-time and part-time, unionized and non-unionized. Additionally, for those registrants whose workforces were represented by unions, the disclosures included start dates and expiration dates for their existing collective bargaining agreements.

Measures related to employee recruitment, development, safety, and diversity were other heavily featured categories across disclosures. One firm’s disclosure went so far as to list the various employee trainings they required their employees to take and provided the total number of hours they require each employee to spend on professional development during their first several months on the job. And as you can imagine, firm descriptions of how they addressed the COVID-19 pandemic often appeared in or alongside sections elaborating on employee safety.

Another significant human capital objective the disclosures homed in on was diversity and inclusion. With the exception of one, all the disclosures I reviewed recounted the various ways in which the reporting entity strove to measure and improve their diversity and inclusion efforts. Indeed, one registrant dedicated the overwhelming majority of their human capital resource discussion to explaining the firm’s longtime commitment to gender equality and how critical it was to the firm that their employees reflect the diverse groups the firm serves.

Although not a substantive observation, I’d be remiss if I failed to mention the style in which the majority of these disclosures were written. Often spanning multiple pages, registrants clearly spent a significant amount of time wordsmithing their human capital resource sections. When it came to descriptions of employee benefits, recruiting methods, and development, the sections almost read as though they were pulled from a brochure one might pick up at a job fair. Similarly, the sections describing diversity and inclusion efforts utilized elevated prose worthy of its subject. Of course, it is important to not let the prose get to the point of being fiction, in that being truthful in these disclosures is an absolute must.

While the SEC did not define “human capital resources,” it appears that registrants already share some semblance of a common understanding of the term. This shared definition will only become more robust as firms continue to update their forms to comply with the modernized Regulation S-K.

*Andrew Cox is a law clerk in our Houston office.