Welcome to the Age of Corporate Culture Transparency – Is Your Company Ready for It?

The expected new SEC requirements will have a lasting impact on corporate culture.

“Our people are our greatest asset” – 18 years ago, former Xerox CEO Anne M. Mulcahy made this statement at the Life Management Conference in 2003. As 2022 dawns, this could become a reality and CEOs and CFOs must deliver more than lip service. The SEC is expected to issue new rules on the disclosure of human capital data of publicly traded companies. This will have a significant impact on how companies emphasize corporate culture. In the era of ESG, investors are increasingly focusing on the social (“S”) aspect of ESG. Money talks – and companies will have to act.

A recent study by JUST Capital on the state of human capital reporting highlights the need for action. Analysis of human capital metrics from America’s 100 largest companies shows that currently, disclosure of critical elements such as compensation, training, demographics, and health is low across the board. According to the report, “no company has at least one disclosure in every theme, and no company has a disclosure on every metric.” JUST Capital refers to six themes: type of employment and workforce; Job stability; Salaries, compensation and benefits; Workforce diversity, equity and inclusion; Occupational health and safety and finally Training and education.

But information on these six themes is important and can make a difference. It is essential for investors who need to make informed decisions in the era of ESG. But more importantly, it is essential for employees and workers when making decisions about their careers. Undoubtedly, this will increase the importance of managers and human resources departments which often are not taken as seriously by CEOs as the quoted statement “Our people are our greatest asset” suggests. But now they have to take this very seriously because their actions (or non-actions) will impact the performance of their actions. This marks a new era in the era of corporate responsibility.

SEC Chief Gary Gensler’s tweets from last year signaled a change to come that will shake companies significantly when he “asked staff to offer recommendations for consideration by the Commission on Human Capital Disclosure” . Companies had better be prepared to have clear information on key indicators. According to Gensler, these could include workforce turnover, training and skills development, compensation, benefits, workforce demographics including diversity, as well as health and safety.

The SEC’s messages come at a time when public attention is focused on the largest employee departures in history – 19 million people in the United States since April 2020. The labor shortage has become a real problem and keeps executives awake at night. McKinsey & Co. published a study that clearly shows the disconnect between employers and employees. Employers must recognize and accept that emotional criteria such as “the organization values ​​me”, “my manager values ​​me” or “I feel a sense of belonging” are at the top of the list for employees. Employers think criteria like “inadequate pay” or simply “seeking a better job” are high on the list, but they clearly aren’t. If CEOs are serious about “their” human capital, they had better act and find a new balance between culture and success.

The Soul Index, a performance ranking of companies doing just that, shows that culture and success are actually two sides of the same coin. The top twenty companies have returned 199% between 2016 and 2020. This compares to 180% of the Nasdaq, 83% of the S&P500 and 75% of the Dow Jones. Technology companies are at the forefront of those who understand the importance of corporate culture. 60% of the 2021 Soul Index falls into this category, with Adobe topping the chart with Salesforce and Microsoft following suit.

Expected regulations may require companies to disclose information within the following parameters:

  • Attraction: Time to fill, time to fill critical positions, percentage of positions filled internally, percentage of critical positions filled internally.
  • Development: Total cost of training and development, percentage of employees who receive compliance and ethics training, percentage of employees who receive training, average number of hours of formal training per year, percentage of leaders who receive training, percentage of leaders who receive leadership training.
  • Retention: Turnover, turnover for critical items.
  • Recommended additional stats: Employee engagement score, leadership confidence score, diversity by gender, age, disability, race or national origin, leadership diversity, pay equity, human capital return on investment, total labor cost, number of FTEs, casual/contract and temporary workers.

According to Bruce Bolger, founder of the Enterprise Engagement Alliance at TheEEA.org, a leader in helping organizations create human capital reports, “Human capital is a business opportunity and a risk, not just a compliance issue. When organizational leaders understand that human capital is an asset that can be managed to increase revenue and reduce risk, they recognize that having meaningful human capital management practices and measures is a way to increase revenues, not just to satisfy regulators or investors.

The ability of organizations to provide this data is actually an indicator of the strength and importance of the current HR organization. Are these data already available? HR will rise to the same level as financial management since data is no longer just an asset for a CSR or sustainable development report. They are likely to become an essential part of what companies must file on their next K-10 return.

As with previous SEC rules, the dynamic will have a rather rapid impact on non-public companies as well. This will have a lasting effect on the quality of the corporate culture in all sectors. Imagine a time when employees start looking beyond Glassdoor or Great Place to Work data on criteria such as diversity, pay equity, employee engagement, or leadership confidence. If their next potential employer doesn’t share any data in these areas, guess what will happen? The employer brand will no longer be reduced to beautiful slogans and perfect initiatives, but to sustainable concrete facts.

The entire C suite must deal with the impact of these regulations. Imagine the next roadshow where the CEO not only brings the CFO but also the CHRO (Chief Human Resources Officer) or CPO (Chief People Officer). Because investors will want to know how companies manage their human capital. They will want a level of certainty why this company will succeed in filling the pipeline with qualified candidates in the future. Data accuracy will improve like never before. Companies simply cannot afford to publicly retract or apologize for incorrect data. This will put a lot of pressure on HR departments which, for the most part, will not already be prepared for the task ahead.

Anne M. Mulcahy’s statement “Our employees are our greatest asset” finally has a chance to become more than just a verbatim. It finally has a chance to come true in the business world.

Written by Ralf Specht, author of Build the soul of the company.

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