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Is Your Organization Ready for the SEC’s Human Capital Reporting Rules?

Guest author John R. Mattox, II, Ph.D., VP of People Analytics, Action Learning Associates, LLC

I doubt that your team is ready for the SEC. Let me explain.

The Securities and Exchange Commission (SEC) currently requires publicly traded companies to report ONLY ONE metric about human capital: number of employees.  Human Capital is their biggest expense. For investors, that ONE METRIC does not provide adequate information about an organization’s most profitable intangible resource- human capital. For HR and business leaders, that one metric is NOT SUFFICIENT to monitor and manage the workforce effectively.

Human Capital metrics are essential to 1) manage the workforce and 2) drive business value.

On August 26, 2020 the SEC revised its rule on Human Capital Reporting.  Anything that has a “material influence on the operations and profitability of the organization should be reported.”

Privately-owned businesses WILL follow publicly-traded organizations. They always have.

A wide range of human capital metrics will apply.  Thankfully, there is a well-researched and comprehensive framework for measuring and reporting human capital metrics.  We can help your team immediately.

The International Standards Organization, (ISO) which has improved product quality and consistency around the globe with ISO 9000, has developed a NEW standard for sharing meaningful measures of human capital called ISO 30414. You need to know about it.

The ISO 340414 standard outlines 11 areas that organizational leaders should measure and report on various aspects of your workforce.  The purpose is to give investors insights into the people-side of the business.  Equally as important, ISO 30414 gives the c-suite a standard set of metrics to monitor and manage to improve the organization.

What are the Human Capital Measures?

The ISO standard contains 11 general reporting areas which are listed below:

  • Compliance and ethics
  • Costs
  • Diversity
  • Leadership
  • Organizational culture
  • Organizational health, safety, and well-being
  • Productivity
  • Recruitment, mobility, and turnover
  • Skills and capabilities
  • Succession planning
  • Workforce availability

Along with these reporting areas, the new ISO 30414 standard provides specific metrics and recommended ways to calculate each of these measures. 

You can expect updates to definitions and calculations in the coming years as practitioners adopt and apply these ISO 30414 standards. We can help you.

Back to my question: Is Your Organization Prepared?

The question for you is simple:  Are you ready?  I doubt it.

Is your organization ready to adopt this ISO 30414 framework, measure your workforce, take action to improve your organization, and also report that information internally and externally as needed? I doubt it.

If you have an HR analytics team, there is a good possibility that you can analyze and report some or even all of these metrics.  If you do not have an analytics team, your system administrators might be able to cabal together a representative set of measures. But you will still require our help.

Based on the LinkedIn Global Talent Trends study (2020), 85% of those surveyed think people analytics will be a dominant function in human resources in the coming years.  Yet, 55% of those surveyed say they “still need help putting basic people analytics into practice.”

Nearly half of all organizations are not prepared for ISO 30414 human capital reporting.

Sadly, I doubt that your team or organization is ready for the SEC. We can help you.

Is Human Capital Reporting Required?

This is a simple question that has a complex answer.  The current answer is “no.”  The SEC does not require publicly traded companies to report anything more than the number of employees.  However, other countries like Germany are requiring extensive HC reporting and they are basing their efforts on the ISO 30414 standard. Dave Vance, the Executive Director of the Center for Talent Reporting (www.centerfortalentreporting.org), recently published an article in CLO Magazine describing when the SEC will require human capital reporting.  The current answer is that the SEC is likely to require publicly traded companies to report “material information”—meaning anything that an investor would find valuable when considering buying a security.  That is very broad language and will likely encompass all Human Capital measures. 

The ISO 30414 provides a useful framework, valuable metrics, and informative calculations and will likely serve as a guide for future organizations. We recommend that YOU adopt these measures today.

Conclusion

Most organizations are not prepared today to augment current public financial statements about the health of their company with information about human capital.  However, information about “material influencers of the business including human capital” are now required by the SEC for publicly traded companies.   

ALL organizations need to prepare for ISO 30414 compliance.  You will soon be required to leverage internal resources like analytics groups, HR systems, and standard measurement processes. 

Most business leaders will need to hire external consultants like Action Learning Associates, with expertise with HR analytics and the ISO 30414 standard. Not only will you need to be compliant with new SEC rules, you will be able to recommend solutions to your c-suite leadership team. Your biggest expense is Human Capital. Soon you will be required to manage your investments in people and improve all aspects of your Human Capital business. Why wait?

Call us TODAY to get started.

John Mattox, PhD and Doug Gray, PhD can be reached at contact us or 615.236.9845.

How HR and ISO 30414 SEC compliance will change your business in 2020 and beyond

SEC Unveils Public Service Announcement To Promote Background Checks |  Vcheck Global

The Next New Business Rule…Will be Driven by HR

Guest article from John R. Mattox, II, Ph.D., VP of Action Learning Associates

Doug Gray, Ph.D., CEO of Action Learning Associates

Tangible and Intangible Assets

Financial capital is the lifeblood of businesses.  It allows leaders to invest in the tangible and intangible aspects of the organization that will drive growth and achieve business goals.  From an accounting perspective, people are an intangible asset.  Like tangible assets such as real estate, buildings, computers, manufacturing equipment, raw materials, etc., WE KNOW that people bring substantial value to the organization.

“We hire the best people,” is not a marketing catch phrase for companies like Google, Amazon, Qualcomm, McKinsey, KPMG, and other organizations that rely on innovations and intellect to achieve their mission. The best people develop new technologies. They build products that can be patented and resold. They program better and faster to streamline business operations. 

Yet, the accounting industry struggles with quantifying intangible assets and how to report them on. 

Why is this so important?

Investors (individual or corporate) review auditing statements to determine whether a company is a worthwhile investment.  An article by EverEdgeGlobal.com titled The Missing Trillions: Valuing Intangible Assets provides several examples of the disconnect between current valuation statements and actual value in the market.  Here is the quote that kicks off the article, “According to a recent report from the UK Treasury, the world’s five most valuable companies are together worth £3.5 trillion, yet their balance sheets report just £172 billion of tangible assets. The other £3.3 trillion of value is missing in action.” Investors are no longer well informed because accountants cannot accurately report the value of intangible assets.

HR is going to drive change for business within the next 3 years.

Until recently, the only human capital metric that was required for public reporting by the Securities and Exchange commission (SEC) was the number of employees.  

On August 26, 2020 the SEC ruled that companies should start reporting information about human capital.  Why? Wouldn’t it be valuable to know the turnover rate within an organization or the vacant positions among leadership?  What about culture? Diversity?  Ethical violations? Would this information change the way you value a company and influence whether you invest or not?  The SEC’s answers to these questions are yes.

The International Standards Organization (ISO) agrees. 

In 2018 after several years of discussion and development in technical committee, the organization approved ISO 30414, a standard for Human Capital Reporting.  This NEW standard recommends that large organizations report 23 people metrics and small organizations report ten metrics.

 The ISO encourages organizations to adopt these standards so all organizations can provide useful information to stakeholders.  The standards also allow for comparison across organizations—again, to help make more informed investment decisions.  The standard also serves as a guide for organizations that are not measuring human capital well.  It is a playbook of important measures.  Peter Drucker said, “If you can’t measure it, you can’t improve it.”  Here is the opportunity for organizations to get better by measuring and managing one of their largest costs and also one of the greatest influencers of profitability.

What are the Human Capital Measures?

The ISO standard contains 11 general reporting areas which are listed below:

  • Compliance and ethics
  • Costs
  • Diversity
  • Leadership
  • Organizational culture
  • Organizational health, safety, and well-being
  • Productivity
  • Recruitment, mobility, and turnover
  • Skills and capabilities
  • Succession planning
  • Workforce availability

Along with these reporting areas, the standard provides specific metrics and recommended ways to calculate them. 

Expect updates to definitions and calculations in the coming years as practitioners adopt and apply the standard.

Conclusion

Employees are gaining recognition as a differentiator that adds more value than traditional tangible assets.  For decades business owners and audit leaders have struggled to frame and quantify the value that employees bring.  Now with the ISO 30414, there is a viable framework and detailed measures for demonstrating value. 

The SEC is now requiring publicly traded companies to report material information about human capital. 

Let me repeat that: The SEC is now requiring publicly traded companies to report material information about human capital. 

Measurement and reporting of these metrics will provide investors with valuable information to fuel decisions.  It will also provide business leaders with valuable metrics to monitor and manage a critical driver of success.

If you need additional information, please contact John Mattox or Doug Gray at Action Learning Associates by phone 615 236 9845. We can help your team measure and manage your ISO 30414 compliance initiatives. Get ahead of the curve. Call us today.