Seyfarth Synopsis: The SEC announced a new “human capital” disclosure requirement, to take effect thirty days after publication in the Federal Register. The language of the rule does not give much by way of guidance—on purpose, and over dissents that would have added more prescriptive detail. The SEC deliberately declined to define the phrase “human capital” or expound on what information needs to be disclosed beyond a registrant’s number of employees, instead relying on a catch-all of “material” information that can become a trap for the unwary.
On Wednesday, August 26, 2020 the Securities and Exchange Commission (“SEC”) announced the adoption of several amendments to take effect thirty days after publication in the Federal Register, including an amendment to Item 101(c) that will require, as a disclosure topic, “a description of the registrant's human capital resources to the extent such disclosures would be material to an understanding of the registrant’s business.”
The New Rule
Specifically, the text of the new rule requires disclosure of:
(ii) 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 (such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the development, attraction and retention of personnel).
Notably—and deliberately—the new rule does not define “human capital,” with the SEC explaining that “this term may evolve over time and may be defined by different companies in ways that are industry specific.” And while the rule does require disclosure of the number of persons employed by a registrant, which the SEC explained “can help investors assess the size and scale of a registrant’s operations as well as changes over time,” the SEC declined to “expand this disclosure topic to include additional metrics, such as the number of full-time, part-time, and contingent workers, and employee turnover.” That is not to say that these metrics will never need to be disclosed. Rather, the SEC noted that to the extent such metrics, or other metrics such as the number of “independent contractors and contingent workers” are “material to an understanding of the registrant’s business, the registrant must disclose this information.”
Commissioners Crenshaw and Lee Dissent From the New Rule on Vagueness and Other Grounds
The rule was enacted along with a set of other rules in a vote that fell on party lines, with Republicans Hester Peirce and Elad Roisman and independent Jay Clayton voting in favor and Democrats Caroline Crenshaw and Allison Herren Lee voting against. Both Crenshaw and Lee issued public statements explaining their reasoning, including that the new rules were overly vague (and other issues, such as the rules’ silence on diversity and climate risk disclosures).
Commissioner Crenshaw sharply criticized the “generic and vague” rules, stating that she is “concerned today—in the middle of a crisis affecting all aspects of our market—the majority of the Commission is failing to take the opportunity to provide investors with critical and useful information about key corporate metrics,” particularly calling out the lack of any explicit requirement to disclose diversity as well as metrics that speak to the ability to weather a crisis like COVID such as “workplace flexibility and safety, and employee turnover rates.” Similarly, Commissioner Lee criticized that the rules “declined to go beyond merely introducing the topic of human capital generally,” and noted that she would have voted in favor of the final rule “if it had included even minimal expansion on the topic of human capital to include simple, commonly kept metrics such as part time vs. full time workers, workforce expenses, turnover, and diversity.”
The SEC’s new rule requires disclosure of “human capital,” but, as the dissenting voices on the Commission are quick to point out, does not give much by way of guidance as to what should be disclosed. Aside from a registrant’s number of employees, it is unclear what other metrics, such as turnover, the number of independent contractors, or the breakdown of full time vs. part-time workers a registrant will need to disclose. That said, the SEC is still requiring disclosure of “material” information—opening up registrants to risk if they fail to disclose metrics that, while not explicitly identified in the new rule, are “material” to investors. Registrants should proceed with caution, and not take the lack of direction in the new rule as a license to withhold disclosures.
 SEC Press Release 2020-192, SEC Adopts Rule Amendments to Modernize Disclosures of Business, Legal Proceedings, and Risk Factors Under Regulation S-K (Aug. 26, 2020), available here: https://www.sec.gov/news/press-release/2020-192.
 SEC, Final Rule: Modernization of Regulation S-K Items 101, 103, and 105 (August 26, 2020) at 125, available here: https://www.sec.gov/rules/final/2020/33-10825.pdf.
 Id. at 53.
 Id. at 54.
 Id. (emphasis added).
 See Crenshaw, Caroline, Statement on the ‘Modernization’ of Regulation S-K Items 101, 103, and 105 (Aug. 26, 2020), available here: https://www.sec.gov/news/public-statement/crenshaw-statement-modernization-regulation-s-k; Lee, Allison Herren, Regulation S-K and ESG Disclosures: An Unsustainable Silence (Aug. 26, 2020), available here: https://www.sec.gov/news/public-statement/lee-regulation-s-k-2020-08-26.
 Lee (emphasis added).