Balanced SEC Regulations: Senator Braun Warns Against Prescriptive HCM Rules

Ahead of the forthcoming proposal on human capital management disclosure, Senators Mike Braun (R-IN), Joe Manchin (D-WV), and Tommy Tuberville (R-AL) sent an HRPA-supported letter to SEC Chairman, Gary Gensler, discouraging the SEC from mandating more prescriptive and costly rules governing human capital management disclosure. The rule is anticipated in Spring 2025. 

Background: In light of the critical role human capital plays in investment decisions, the SEC implemented a principles-based regulation in 2020. This regulation mandated public companies to disclose descriptions of their human capital resources and relevant metrics, provided they are material to understanding the business. Companies have notably increased their disclosures concerning human capital to comply with this requirement. Given this progress, further stringent regulations by the SEC are unnecessary and harmful.

• Standardizing metrics across industries is challenging as no single metric applies universally and there’s no widely accepted set of standardized human capital metrics, potentially misleading investors.
• Turnover varies significantly across industries, making comparisons difficult. If turnover poses a material risk, it should be addressed in the company’s Annual Report on Form 10-K.
• Detailed disclosures about independent contractors are unnecessary and costly, with no evidence that large investors require this information. Stakeholders may misinterpret the data, affecting perceptions of a company’s financial health or strategic direction.

The letter urges the SEC to carefully evaluate the unintended consequences of mandating standardized disclosures for complex human capital metrics. Rather than imposing rigid standards, the SEC should allow companies to continue to provide relevant disclosures within their proper context, as the Center and Association previously commented. This approach ensures investors have accurate information to base their decisions, promoting transparency without imposing unnecessary burdens on businesses.