Most companies aren’t including DEI and other workforce data in the human capital disclosure sections of their 10-Ks. A recent Intelligize report analyzes SEC filings following a rule change last November.
Though companies say diversity, equity and inclusion (DEI) are top concerns, few included DEI data as part of human capital disclosures on their latest Form 10-Ks.
Public companies already collect and separately report DEI data to the Equal Employment Opportunity Commission (EEOC), but the SEC in November applied its principles-based approach to new reporting requirements for human capital disclosures. This gave companies broad leeway in determining which details about the workforce could be considered “material” for Item S-K Item 101(c) on 10-K filings. Most S&P 500 companies have filed by now. The result? Scanty details and a pattern suggesting companies are eyeing competitors as they determine what to reveal.
“The SEC left it really open-ended,” said Intelligize Senior Director of Customer Experience and Knowledge Rob Peters. Intelligize analyzed human capital disclosures on 427 10-Ks from S&P 500 companies in a recent report. “We saw that particularly with the early disclosures, those right after the regulation went into effect,” Peters continued. “I think some of the later disclosures tend to be more more descriptive, but still lacked the EEOC data. It’s kind of a conundrum. Companies are required to collect and report this data. You would think they would just use the same data on their 10-K. But almost nobody did.”
How are companies approaching reporting obligations under the SEC's new human capital rule? Our blog looks at our new Human Capital Disclosure Report, which found that almost all filings addressed diversity & inclusion, but very few included hard metrics. https://t.co/OYIK6vOnAu
— Intelligize (@Intelligize) April 27, 2021
The SEC’s update to human capital disclosures rules merely encouraged companies to report on the attraction, retention and development of their workforce. Intelligize found, as a result, that many companies only added a few sentences to their filings. A smaller number of companies structured their sections with subheadings dedicated to topics like DEI pledges or employee health and wellness. Just a few provided detailed breakdowns of their workforces. Intelligize also noted that when a filer did describe its workforce in detail, competitors tended to follow suit.
How Companies Describe Their Workforces and Report Human Capital
Public companies report the details of their workforce to the public and to the government in a number of ways, both voluntary and mandated. Many use their websites or annual reports to discuss these issues. Private sector companies with 100 employees or more must also report numerous details of their workforce to the EEOC via form EEO-1. But EEO-1 filings are not public. 10-Ks, meanwhile, are public, go through an audit process and are certified by c-suite executives. Penalties for dishonesty on 10-Ks can involve jail time.
“You can’t spin the message with a 10-K,” Peters said. “It requires you to report bad news as well. You don’t get to sugarcoat things.”
Many Companies Say Improving DEI Is Their Top Priority. But on Audited Documents, They Tend to Be Silent.
One recent survey identified DEI as the single-most important issue for boards. Deloitte’s latest Board Practices Quarterly report—which surveyed board members at many S&P 500 companies along with small-, mid-cap, and private organizations—found DEI beat out recovery from COVID-19 as the most top-of-mind issue.
Some filers analyzed by Intelligize, like Merck and Morgan Stanley, did put their material disclosures where their mouths are and provided detailed breakdowns of their human capital, including percentages of women and people of color (overall and in leadership roles). But most did not do so. (Intelligize did not note exact figures of companies with detailed breakdowns in its report.)
Amazon, for example, employs roughly 1.3 million people and publishes internal DEI data on its site. But its human capital disclosure section formed just two short paragraphs on its latest 10-K.
Background: the SEC Signals a Mountain of Human Capital Disclosure Updates and Delivers a Molehill.
When in the summer of 2019 the SEC announced it was contemplating amendments to human capital disclosure requirements the news was met with enthusiasm by labor advocates who believe that robust, prescriptive changes to the section will make filers more honest about subjects like DEI, employee benefits, compensation and overall workforce makeup.
“Did you just feel the earth shifting below your feet?” wrote talent and development columnist David Vance. “You should have. The importance of this proposed rule for our profession simply cannot be overstated.”
But in the end, the commission’s changes were minimal. While it did update 101(c), the update did not define ‘human capital’ and barely changed existing rules. Its clarifying guidance was just 57 words long and encouraged filers report on “measures and objectives” that “address the development, attraction, and retention of personnel.”
Filing Practices Will Likely Evolve. Experts Recommend Companies Own Up or Risk Getting Left Behind.
In Rob Peters’ view, there isn’t a good case to be made for minimal reporting.
“I get that companies are worried about their reputations,” he said. “But I think it’s better to take DEI on as a challenge. Eventually there are going to be shareholders or activists that that are going to call that out, as other companies come to the forefront and use their diversity as a as a way to promote their own brand.”
Peters encourages companies even to look beyond DEI and SEC guidance to subjects like employee compensation and benefits.
“It’s one area where shareholders probably can come to a better understanding of a company,” he said. “I think it’s more tangible than something like stock performance.”
What’s more, Intelligize noted that companies that reported immediately after the rule change tended to prepare shorter human capital disclosure sections than those that reported months later. Some included surprising topics that fell well outside of the SEC ’s published guidance. For example, American Airlines provided a breakdown of union membership in its workforce.
The authors say this indicates companies are taking note of their competitors.
“Everyone is always looking to competitors as to what they’re disclosing to make sure they’re not missing anything,” Peters said. “With the new regulation, the early adopters [of more detailed sections] tended to be those that are taking the biggest risk. They are used by other companies as either a guidepost or as a warning sign if they were perceived to go in the wrong direction.”
But for the time being, wide leeway remains for companies when it comes to human capital disclosures.
Henry Kronk is the former Managing Editor of Corporate Compliance Insights. His previous reporting has appeared in Exclaim!, the Burlington Free Press, International DJ, eLearning Inside and more. He produced the radio show Code Burst — an investigation into a coding bootcamp that sought to retrain out-of-work coal miners for jobs in tech — for CKUT 90.3 FM in Montreal.
