A widely used definition, popularized by economist Gary Becker and adopted by the OECD, describes human capital as “the knowledge, skills, competences and other attributes embodied in individuals that are relevant to economic activity.” A related formulation describes it as the stock of skills the labor force possesses, together with the investments in people, such as education, training, and health, that increase a person’s productivity. In corporate governance, the term is often used more loosely to describe the workforce’s skills, knowledge, training, and overall productive capacity. Human capital differs from conventional assets because it cannot be owned by anyone other than the person in whom it is embodied. A firm may benefit from a worker’s capabilities, but it cannot own those capabilities in the way it owns machinery, land, or intellectual property. Traditional assets are passive; workers have agency, and the employment relationship is a voluntary one grounded in contract and agency law. These features help explain both the growing importance of human capital to business performance and the difficulty of measuring or valuing it. They also explain why accounting standard-setters, whose definition of an asset requires that future economic benefits be obtained or controlled by the entity, have long been reluctant to recognize human capital on the balance sheet.

Human capital management, or HCM, is the management of the workforce as a strategic resource that contributes to firm performance and long term value. One widely followed definition describes HCM as addressing “the management of a company’s human resources (employees and individual contractors) as key assets to delivering long-term value.” Another describes it as how an organization attracts, hires, develops, retains, enables, and engages the entire workforce, including full time and part time employees, contractors, freelancers, and crowdsourced workers. HCM also encompasses the matters that affect workers’ productivity, including labor relations, health and safety, employee engagement, diversity and inclusion, and corporate culture. The concept has been around for decades under the label “human resource management,” but it entered corporate governance only in the mid-2010s, when investors and boards began to treat workforce practices as relevant to long term value, risk management, and operational resilience. HCM now links workforce practices to shareholder engagement, board oversight, and securities disclosure. Its rationale remains firm performance. HCM generally asks how the workforce should be managed to execute the business model and create value, rather than how governance authority should be redistributed to workers.

Human capital management encompasses those workforce matters that bear on firm performance. Common subjects include workforce composition, compensation and benefits, training and development, turnover and retention, recruiting, health and safety, diversity and inclusion, pay equity, labor relations, corporate culture, succession planning, employee engagement, and supply chain labor practices. Different organizations divide the field in different ways. For example, the Human Capital Management Coalition, a group of public pension funds, grouped HCM into workforce demographics, stability, composition, skills and capabilities, culture and empowerment, health and safety, productivity, human rights, and compensation and incentives. Other frameworks, such as those of the Sustainability Accounting Standards Board (labor practices, employee engagement, diversity and inclusion, supply chain management) and the International Organization for Standardization (leadership, recruitment, mobility, and turnover, succession planning, workforce availability), emphasize different categories. This breadth makes HCM a useful umbrella concept, but it also creates analytical problems. Effective governance and disclosure often require HCM to be separated into more precise categories and metrics.

“Workforce” is often more accurate than “employees” because employee status is a legal classification with distinct significance in labor and employment law, and it excludes many people who perform economically important work for a firm. The workforce can include full time and part time employees, temporary workers, independent contractors, vendor personnel, freelancers, franchisee employees, and subcontracted workers. These distinctions matter because a company may rely heavily on workers who are absent from its employee headcount and conventional human capital disclosures. The technology sector provides a prominent illustration. Temporary, vendor, and contract workers in many instances outnumber a firm’s full time employees. Alphabet/Google employs roughly the same number of contractors as direct hires, a fact that was never disclosed in its SEC reports despite investor interest. Contingent workers often perform similar tasks while receiving different benefits and legal protections and being excluded from career development and participation in the company culture. Excluding them from disclosure leaves investors without information about a segment of the workforce that is integral to the company’s operations. A disclosure framework that uses legal employee status as its boundary may omit a material part of the labor required to operate the business. A better approach is to identify the company’s material workforce and distinguish among its major components, such as full time, part time, and contingent workers.

The law-and-economics case for human capital disclosure begins with securities price accuracy. The more information about a firm’s workforce is incorporated into the price of its securities, the more accurately that price anticipates the firm’s future prospects. When disclosure is absent or lacking, investors cannot readily distinguish high-quality from low-quality firms, which can produce adverse selection, mispricing, and misallocation of capital. Standardized disclosure also allows investors to economize on information and search costs and makes comparisons across firms more reliable. It may improve internal governance as well, because corporate insiders must collect, organize, and analyze information in order to compile disclosure and certify its accuracy. Research suggests meaningful links between human capital practices and firm performance, although the evidence has methodological limits. A 2015 report analyzed 92 studies and concluded that the literature offers considerable empirical evidence that human capital policies can be material to corporate performance. A separate meta analysis of 66 studies found that education, experience, and training have positive effects on firm performance. These findings support a more modest proposition than the claim that every HCM practice increases value: workforce information can be economically significant, and investors benefit from a credible framework that reveals it. Given the limits of the empirical literature, empirical support should be neither a necessary nor a sufficient condition for HCM disclosure reforms.

Human capital has become more important because economic value today is generated by knowledge and by intangible assets such as intellectual property, software, and data rather than only by property, plant, and equipment. Human capital matters in two ways. It is an intangible asset in its own right, and it is also essential to the monetization of other intangible assets, such as intellectual property and data. The shift is visible in market value data. One estimate places the share of intangibles as a source of value at 90% in 2020, up from 17% in 1975. Earlier evidence similarly showed that the book value of physical assets represented only 31% of public company enterprise value in 1998, compared with 83% in 1978. The disclosure system has not fully adjusted to that transformation. Traditional accounting and securities reporting provide detailed information about physical and financial assets, while offering far less information about workforce capabilities, training, stability, and costs. For some firms, particularly in the high-tech sector, human capital is scarcer than financial capital, and the mismatch is correspondingly more serious. The growing importance of human capital strengthens the case for board oversight of HCM, more informative disclosure, and a better accounting treatment of workforce spending.

Human capital and physical capital can both contribute to productive capacity, but the analogy has important limits. A firm can own, control, and depreciate a machine. It cannot own the knowledge or skills embodied in a worker. Traditional assets are passive; workers have agency, and the employment relationship is a voluntary one grounded in principles of contract and agency law. Human capital also fails to fit within the accounting definition of an asset, which requires probable future economic benefits obtained or controlled by the entity as a result of past transactions or events. An employment relationship gives the firm temporary use of productive capacity, but the firm’s control over its employees is fundamentally distinct from the control it has over machines or intellectual property. The analogy nevertheless has explanatory value. It draws attention to the fact that workers generate future economic benefits and that investments in training and skills can increase productive capacity. It also helps explain why firms frequently describe employees as their “most valuable asset.” The danger is that the metaphor treats workers as assets nonetheless. Human capital is inseparable from persons, and a single-minded focus on worker productivity, in the manner of scientific management, need not benefit workers, especially where the interests of employees and shareholders in the allocation of the firm’s surplus diverge.

As described by Professor George S. Georgiev, the “workers as assets” model treats the workforce’s productive capacity as a resource to be managed for the benefit of the firm and its shareholders. This is the model on which the HCM movement has leaned most heavily. It supports better training, retention, safety, and culture because those practices may improve productivity or firm value. The “workers as investors” model instead views workers as investors of firm-specific human capital, much as shareholders invest financial capital. Shareholders’ firm-specific investment is induced and protected through the property and control rights embedded in corporate law; workers do not benefit from such rights. Workers also cannot diversify, because they invest their human capital in only one firm at a time, and the return on firm-specific human capital is substantially lower outside the firm than within it. One classic study found that displaced workers who found new jobs in the same industry experienced an approximately 20% drop in long term earnings, a substantial portion of which reflected the loss of a firm-specific component of earnings. The investors model would make workers residual claimants akin to shareholders and supports extending to them at least some of the same corporate law protections. The two models are not mutually exclusive, but they imply different answers about who should benefit from HCM and what legal reforms are appropriate. The investors model has limits of its own: it assumes competitive labor markets, and it fits high-skill workers far better than lower-skilled workers.

Workers have traditionally occupied the periphery of U.S. corporate governance because corporate law organizes governance around managers, directors, and shareholders. Shareholders vote on director elections, charter and bylaw amendments, mergers, and dissolution, inspect books and records, sue for fiduciary duty breaches, submit shareholder proposals, express a view on executive compensation, and receive detailed information about the firm on a regular basis. Workers receive none of those rights merely because they work for the firm. Their relationship with the corporation is treated as strictly contractual and thus outside the scope of corporate law. Contractarian theories reinforce this structure by characterizing employees as fixed claimants, while shareholders are treated as the only residual claimants with the right set of incentives to maximize firm value. The federal disclosure regime reflected the same priorities. Until 2018, public companies were not required to disclose any specific information about their nonexecutive workforce apart from a single data point, the total number of employees. The CEO to median worker pay ratio then added minimal information about nonexecutive compensation, and the 2020 HCM rule added an open ended disclosure mandate qualified by materiality. This history explains how workforce matters could be central to operations while remaining largely invisible in board deliberations, disclosure reports, and annual shareholder meetings. Workers could affect corporate decisionmaking on an ad hoc basis through strikes, advocacy, or litigation, but such mechanisms are diffuse and generally ineffectual.

Shareholders possess decision rights, information rights, and litigation rights that workers generally lack. Under state law, they vote on director elections, charter and bylaw amendments, mergers, and dissolution, inspect the corporation’s books and records, and sue directors and officers for fiduciary duty breaches. In public companies subject to the federal securities laws, they may also submit proposals under Rule 14a-8, express a view on executive compensation, bring securities fraud suits, and receive detailed information about the firm on a regular basis. Workers do not receive parallel rights merely by virtue of employment. They may have statutory labor law protections or resort to collective action such as strikes, but those mechanisms operate outside the corporate governance framework and are generally ineffectual within it. This asymmetry is notable because workers and shareholders both make firm-specific investments that depend on the firm’s success. Shareholders invest financial capital, while workers invest firm-specific human capital when they enter into an employment relationship. Corporate law induces and protects the financial investment through property and control rights, while treating the employment relationship as strictly contractual. Historical reform proposals have sought to narrow the gap through worker elected directors, consultation rights, fiduciary duties owed to workers, workplace disclosure, and employee ownership, but those proposals have yet to gain serious traction in the United States.

The nexus of contracts theory views the firm as a collection of agreements among shareholders, managers, workers, creditors, suppliers, customers, and other participants. Each of these parties, except shareholders, is said to receive a fixed contractual claim on the firm’s assets, while shareholders receive the residual after those claims are satisfied. Because shareholders are the only residual claimants, the theory treats them as having the right incentives to maximize firm value and uses this to justify giving them governance rights. Employees, by contrast, are treated as contractual counterparties whose relationship with the firm is strictly contractual and therefore outside the scope of corporate law. This account helps explain why workers receive no decision, information, or litigation rights. It has also been criticized for treating employees as fixed claimants in a way that is inaccurate, or at least oversimplified. Workers make a firm-specific investment when they enter an employment relationship, and the return on that investment is substantially lower outside the firm than within it. Under the predominant at-will employment model, workers enjoy no income guarantees or meaningful contractual protections for that investment, and they cannot mitigate risk through diversification because they generally invest their human capital in only one firm at a time. These features complicate the claim that workers are merely fixed claimants who need no place in governance. Irrespective of its accuracy or normative validity, however, the model remains the most commonplace explanation for workers’ absence from the firm’s control structures.

Georgiev contends that workers are less able than shareholders to diversify firm-specific risk because they generally invest their human capital in only one firm at a time, whereas shareholders and bondholders can mitigate risk through diversification. Just as shareholders make a firm-specific investment when they purchase stock, workers make a firm-specific investment when they enter an employment relationship. Unlike the return on financial capital, however, the return on firm-specific human capital is substantially lower outside the firm than within it. Research on displaced workers illustrates the magnitude of the risk. One classic study found an approximately 20% drop in the long-term earnings of displaced manufacturing and nonmanufacturing workers who found new jobs in the same industry, indicating that a substantial portion of those earnings losses resulted from the loss of a highly firm-specific component of earnings. Workers are also differently vulnerable than shareholders or bondholders: under the predominant at-will employment model in the United States, they enjoy no income guarantees or meaningful contractual protections for their human capital investment. This difference supports the argument that workers can be viewed as risk-bearing residual claimants alongside shareholders, even though corporate law does not treat them that way. The argument has limits. It assumes competitive labor markets in which workers have multiple employment opportunities, an assumption recent empirical studies have called into question, and it fits high-skill workers better than lower-skilled workers whose labor inputs are undifferentiated and more abundant.

Greater attention to human capital does not by itself amount to worker empowerment. HCM has increased the visibility of the workforce in board deliberations, shareholder engagement, and corporate disclosure, but it does not give workers a role in governance through board representation or through information or litigation rights akin to those enjoyed by shareholders alone, and it does not give them a direct claim on the firm’s surplus. The dominant rationale treats workforce practices as determinants of productivity, risk, and shareholder value. Workers may receive collateral benefits in terms of their economic status and working conditions, but those benefits are not the formal objective of the governance system, and they need not materialize. Investors ask boards to oversee the workforce, regulators require companies to describe their human capital resources, and standard setters design metrics for investor use. Workers themselves do not ordinarily gain a new role in those processes. Nor is there systematic evidence that labor’s power has changed for the better as a result of the increased focus on HCM disclosure and oversight; the goal of the SEC’s 2020 rule was investor information, not worker empowerment. Attention to labor does not automatically protect labor’s interests, and the collateral effects of enhanced disclosure may include enhanced worker surveillance. HCM places workforce matters inside mainstream corporate governance, but it does not amount to workforce participation in governance or to treating employee concerns on par with shareholder concerns.

The worker empowerment agenda seeks to change who exercises corporate power. Its proposals include decision rights such as director appointment, consultation, and veto rights; fiduciary duties to workers enforceable through litigation; information rights, including federal disclosure and antifraud protections and intra-firm information sharing; and economic rights such as employee ownership. Many proposals arose in the aftermath of the leveraged buyouts of the 1980s, which greatly benefited shareholders while hurting the economic standing of workers. Their objective is to increase the relative power of employees vis-à-vis shareholders, with the expectation that some of the firm’s surplus would be reallocated from shareholders to workers. The HCM movement leaves the existing allocation of governance authority intact. Boards and investors receive more information about the workforce and devote more attention to its management, but workers themselves do not receive new formal powers. Whereas the worker empowerment agenda seeks to change the means of corporate governance, HCM changes neither the means nor the ends and instead seeks to raise awareness that managing human capital matters as much to firm performance as managing physical assets. This relative modesty helps explain HCM’s success. Proposals for employee board representation have existed for decades and garnered renewed political support in the late 2010s, including proposals for workers to elect one third, 40%, or 45% of directors at large companies. None became law. HCM, by contrast, fit within shareholder primacy and gained significant traction in the span of a few years.

The worker shareholder agenda uses workers’ retirement savings and the governance rights attached to those investments to advance labor interests. Labor union pension funds and other labor affiliated investors may file shareholder proposals, vote on executive compensation, or serve as lead plaintiffs in shareholder litigation in support of job protection, compensation, or other labor friendly policies. In practice, these investors have traditionally been most successful with garden-variety governance proposals that attract support from other shareholders rather than narrower labor-related proposals, and the availability of the shareholder proposal rule for employment-related proposals has varied considerably over the years. The stakeholder primacy agenda seeks to redefine corporate purpose so that directors consider workers and other constituencies alongside shareholders, while holding the means of corporate governance relatively intact. HCM changes neither the means nor the ends of corporate governance. It uses investor focused disclosure and board oversight to improve workforce management for the purpose of firm performance. The intended beneficiary remains the shareholder, and workers are at most indirect beneficiaries. This distinction helps explain why HCM can coexist with traditional shareholder primacy and why the corporate establishment could get behind it at relatively low cost, in contrast to the older agendas, which remain largely aspirational despite a long history. The same feature limits HCM’s capacity to alter workers’ formal status or to ensure that its benefits reach employees.

European and U.K. systems give workers a more direct place in corporate governance than the United States, an outlier among otherwise similar market economies. About half of EU member states have laws requiring worker representation on boards of directors. In most cases, worker representatives comprise one third of the board and have the same powers to participate in decision making as shareholder elected directors. Germany goes further for companies with more than 2,000 German-based employees: employee-elected directors comprise half of the supervisory board under quasi-parity codetermination. Works councils, which employees in all EU countries have the right to establish, also hold consultation, information, and approval rights on certain governance, strategic, and operational matters. EU employees do not enjoy decision-making parity with shareholders, but they hold more power vis-à-vis shareholders than U.S. employees do. The United Kingdom, whose system is otherwise closest to the U.S. model, diverged from it in 2018 by expanding the role of employees, although the reforms retreated from the 2016 Green Paper’s stronger options. The U.K. Corporate Governance Code identifies a director appointed from the workforce, a formal workforce advisory panel, or a designated nonexecutive director as acceptable methods of workforce engagement. Companies with more than 250 U.K.-based employees must report how directors engaged with employees and had regard to their interests, and large companies must explain how directors complied with the statutory duty to have regard to stakeholder interests. These measures resonate with the worker empowerment and stakeholder primacy agendas and push against shareholder primacy, whereas the U.S. HCM movement exists within the traditional shareholder primacy realm.

The human capital management movement is the broad set of loosely coordinated and mutually reinforcing initiatives in support of investor-facing HCM disclosure and board-level oversight of HCM matters that brought workforce issues into mainstream U.S. corporate governance. Its participants include institutional investors and asset managers, public pension funds, labor affiliated investors, public companies and their boards, regulators, legislators, law firms, accounting firms, executive compensation consultants, and domestic and international standard setters. The term “movement” is used in its common meaning rather than as a claim that HCM is a social movement. It denotes concerted, loosely coordinated, and mutually reinforcing actions by multiple actors to bring about a particular change in policy and practice, in the same sense as the director independence, shareholder empowerment, pay-for-performance, and corporate social responsibility movements. The movement emerged through investor engagement, a rulemaking petition, changes in board-level governance, voluntary corporate reporting, SEC rulemaking, proposed legislation, private standard setting, and prescriptive statements from board advisors. Its distinctive feature is that it focuses on workers while operating firmly within the existing shareholder centered framework of corporate law. The common rationale is that employees’ human capital is an important asset that ought to be managed, in the interest of shareholders, to improve productivity and firm performance. HCM has increased the visibility of workers, but it has not given them formal governance rights or made them the direct beneficiaries of corporate decision making.

The HCM movement developed through several institutional channels at roughly the same time. Large asset managers, led by BlackRock, made human capital management an engagement priority beginning in 2017 and asked boards about employee development, diversity, health and safety, labor relations, and workforce stability. A coalition of public pension funds submitted a detailed SEC rulemaking petition the same year. Boards expanded oversight, renamed compensation committees and amended their charters, identified HCM as a skill sought in director selection, and incorporated workforce measures into executive incentive plans. Public companies increased voluntary workforce reporting in proxy statements and sustainability reports. The SEC adopted an HCM disclosure rule in August 2020, while members of Congress introduced legislation that would have required far more detailed metrics and narrative information. Private standard setters, including SASB, ISO, GRI, the World Economic Forum, and the Embankment Project for Inclusive Capitalism, developed overlapping reporting frameworks. Board advisors, including law firms, accounting firms, and compensation consultants, as well as the Conference Board, described HCM oversight as an emerging best practice. The movement also had antecedents: the Human Capital Management Coalition had engaged with firms on HCM matters with little fanfare since its founding in 2013, and the AFL-CIO issued a report on HCM disclosure in 2016, suggesting that the movement’s roots lie with public pension funds and labor unions. No single statute, court decision, or regulator introduced HCM; it spread across the engagement, disclosure, board oversight, compensation, standard setting, and advisory mechanisms that shape public company behavior.

In Georgiev’s account, several factors help explain the HCM movement’s swift rise, subject to the caveat that any such account is somewhat speculative: the socio-economic environment of the 2010s, contemporaneous changes in the corporate governance ecosystem, and the malleable and non-disruptive nature of the HCM concept. The 2008 financial crisis and the slow recovery placed stress on workers, including growing economic insecurity, pay disparities, and wealth inequality, exacerbated by inadequate workforce training, job obsolescence due to automation, and a worker skills gap. By 2013, labor’s share of income was the lowest since World War II. Between 1979 and 2018, U.S. net productivity rose 69.6%, while inflation adjusted pay for a typical worker rose only 11.6%. A study covering 195 countries and territories found that the United States fell from 6th to 27th place in human capital investment between 1990 and 2016, the only industrialized country to experience such a drop. Political paralysis made regulatory solutions hard to come by, and some attention shifted to firms’ treatment of their workers. The MeToo movement’s focus on workplace sexual harassment, the COVID-19 crisis’s focus on workforce health, safety, and resilience, and the racial justice protests’ focus on diversity and inclusion gave the movement additional momentum. At the same time, BlackRock and other large asset managers had come to hold considerable voting power and even greater soft power, which they willingly exercised in support of HCM. Finally, HCM is intuitive and non-threatening as a reform agenda, anodyne next to the transformational proposals of progressive politicians, and a cause the corporate establishment could get behind at relatively low cost.

Georgiev’s review of the Harvard Law School Forum on Corporate Governance, a de facto clearing house for corporate governance developments, provides a rough quantitative illustration. In each year from the Forum’s inception in 2007 through 2016, posts mentioning “human capital” were in the single digits. The term was then mentioned 31 times in 2017, 61 times in 2018, 117 times in 2019, and 167 times in 2020. The total number of Forum posts generally held steady over time, which makes year-on-year comparisons meaningful. HCM went mainstream in 2017 with BlackRock’s adoption of HCM as an engagement priority and the Human Capital Management Coalition’s rulemaking petition to the SEC. Just three and a half years later, the SEC had adopted an HCM disclosure rule and many boards were changing longstanding practices to incorporate HCM. The participants in the HCM discourse grew to include not just investors and public companies but also legal advisors, accounting firms, executive compensation consultants, regulators, legislators, and numerous standard-setting organizations. The near-universal support for HCM also stands out: other sustainability topics, such as climate change, had been a focus for parts of the corporate governance community for much longer without generating the same level of interest or support. The pace is striking because proposals to give workers board representation or other formal governance rights had circulated for decades without adoption, and the idea of HCM disclosure had been on the table since the 1990s. HCM succeeded because it is intuitive and non-threatening as a reform agenda and fit within existing governance structures and investor-oriented rationales.

BlackRock helped transform HCM from a specialized labor and pension fund concern into a mainstream board and investor issue. Beginning in 2017, its chief executive letters and engagement priorities addressed workforce training, skills gaps, retirement security, diversity, culture, health and safety, labor relations, and board oversight. One early statement explained that an engaged and stable workforce could be a competitive advantage in a talent constrained environment and treated HCM as a window into corporate culture, operational risk management, and board quality. The tone later shifted from questions for engagement to affirmative expectations. BlackRock stated that boards should oversee HCM strategies and warned that it could hold relevant directors accountable for inadequate disclosure of the board’s role. State Street, Vanguard, and CalPERS adopted similar positions. The three largest asset managers collectively vote about 25% of the shares in S&P 500 companies, and recent evidence points to a high degree of compliance with BlackRock’s mandates. As a universal owner, however, BlackRock has incentives to maximize the value of its entire portfolio, and recommendations tailored to the largest firms may reduce the value of individual firms and harm undiversified investors. A stewardship team of about 45 analysts covering some 16,000 companies may also lack the capacity and expertise, and BlackRock itself the legitimacy and accountability, to set what are in effect mandatory HCM policies.

Public pension funds and labor organizations helped originate the HCM movement before the largest asset managers made it prominent. The Human Capital Management Coalition, a group of public pension funds led by the UAW Retiree Medical Benefits Trust, had engaged firms on workforce pay, training budgets, and board oversight of HR matters since its founding in 2013. Those themes later came to define the HCM movement. The AFL-CIO reinforced the effort through a 2016 report titled “Valuing America’s Greatest Asset: Corporate Disclosure of Human Capital Management,” which read as if it came from an organization focused on shareholder wealth maximization rather than one organized to protect and empower workers. These actors then supported SEC rulemaking, most notably through the Coalition’s 2017 petition, which emphasized long term value creation, risk mitigation, and stewardship of human capital. The episode also marked these actors’ turn to softer engagement and lobbying for shareholder oriented disclosure, beyond their traditional shareholder proposals and litigation. In adopting a workers as assets rationale, organizations associated with labor portrayed the workforce as an object to be managed in the interest of investors rather than as the direct beneficiary of the initiatives. Workers have gained visibility in disclosure reports and attention in boardrooms, but that visibility does not mean that employees have taken a seat at the board table.

The Human Capital Management Coalition’s 2017 petition asked the SEC to consider adopting disclosure rules related to the knowledge, skills, and engagement of the workforce. The coalition was a group of public pension funds, led by the UAW Retiree Medical Benefits Trust, with $2.8 trillion in assets under management. It asserted that human capital is a company’s most valuable asset and that stewarding human capital with that in mind would help to preserve and add value, and that skillful management of human capital is associated with better performance and risk mitigation, making HCM essential to long term value creation and therefore material to evaluating a company’s prospects. The petition identified a broad set of potential disclosure topics: workforce demographics, stability, composition, skills and capabilities, compensation and incentives, culture and empowerment, health and safety, productivity, and human rights. Unlike earlier comment letters that had mentioned workforce topics alongside a host of other ESG topics, the petition separated HCM disclosure from other ESG disclosure and presented a detailed case for its importance, prompting more focused consideration of the issue. It attracted support from the Council of Institutional Investors and a number of large institutional investors. It gave the SEC Investor Advisory Committee an occasion to study HCM disclosure, which contributed to the Committee’s March 2019 recommendation and, ultimately, to the SEC’s adoption of the 2020 HCM disclosure rule.

Private standard setters supplied much of the substantive detail that the SEC’s open ended rule did not provide. SASB developed industry specific sustainability standards and reported that 48 of its 77 industry standards already contained at least one human capital metric. Its measures range from turnover and training expense to tailored indicators such as silicosis cases in construction materials, road accidents in waste management, and the percentage of the gaming floor where smoking is allowed. SASB grounds its standards in the SEC’s own financial materiality standard and has urged the SEC to recognize them as a means of compliance. ISO called for public reporting of 23 metrics across nine categories and internal reporting of 36 additional metrics. GRI, the Embankment Project, and the World Economic Forum offered further frameworks. The corporate governance groups of law firms, big four accounting firms, and executive compensation consultants, joined by the Conference Board and by the proxy advisers’ voting guidelines, described HCM as a board responsibility and transformed emerging practices into best practices. This activity helped the movement gain and sustain momentum and filled the vacuum created by the SEC’s inaction, but it also produced a crowded and fragmented field, because organizations used different conceptions of HCM’s overall scope and different definitions of its categories. Important categories of HCM information can be standardized, but coordination requires a decisionmaker with both regulatory expertise and democratic legitimacy.

Human capital management became a board oversight issue because participants in the HCM movement came to view proper HCM as an important component of business success and inadequate HCM as a source of business risk. Skills gaps, high turnover (one estimate put the cost of replacing Amazon’s workforce at $1 to $3 billion a year), food safety failures, and sexual harassment have each been treated as matters warranting board attention. These subjects were traditionally treated as management responsibilities, and the baseline governance frameworks under state and federal law make no specific mention of HCM. Investors and advisers nevertheless pressed for board level attention, and then SEC Chairman Jay Clayton described human capital as a mission critical asset for some companies. Caremark requires boards to implement reporting and information systems and then to monitor and oversee them. Board involvement and oversight alone are insufficient, however, and could be counterproductive without adequate expertise and bandwidth. Directors serve part time, and full time management may be better placed to oversee HCM policies once they reach a certain level of technical specificity. Because optimal arrangements differ from firm to firm, participants in the movement should pay more attention to designing the right oversight structures and determining which matters deserve board time, rather than viewing board oversight as an unalloyed good. Overloading the board with generic checklists may prevent it from monitoring the systems it has implemented.

Several studies document that public company boards changed their HCM practices during the late 2010s. A survey of 378 directors conducted in the fall of 2019 found that workforce oversight was discussed regularly, such as at every board meeting, at 40% of the companies studied. Another 30% considered HCM in an embedded way across multiple board discussions and decisions, while the remainder addressed it as needed. Two separate studies of 100 large companies found that approximately 40% had broadened the name of the compensation committee by adding terms such as human resources, people resources, personnel, or talent. Committee responsibilities also expanded beyond executive pay. Proxy disclosures of director qualifications increasingly identified HCM as a relevant skill or area of expertise, and workforce measures began appearing in executive incentive plans. These changes are important because the legal baseline did not specifically require HCM oversight. They arose voluntarily, in response to advisers’ guidance and BlackRock’s warning that it would hold boards accountable. The studies have limitations, including small samples, classification challenges stemming from the breadth of the HCM concept, and data that capture practices at a single point in time. The evidence nevertheless shows a clear shift: matters once treated primarily as a management concern became embedded in board structures, committee charters, director selection, and compensation design.

Committee charters and companies’ disclosures of the skills they seek in directors show that HCM was being embedded in formal board structures rather than discussed only on an ad hoc basis. A 2019 study of the 100 largest public companies by revenue found that 58% of compensation committee charters included responsibility for broad compensation and benefit programs, 33% included diversity and inclusion programs, and 14% included culture, employee relations, and engagement. A 2020 study of the 100 largest non-controlled companies analyzed committee responsibility descriptions and found references to talent development, human capital management, culture, retention, and pay equity. The same study reported that 35% of the companies expressly identified HCM as a skill or area of expertise important in the selection of directors. Workforce considerations also entered incentive compensation. Thirty two % of plans considered talent and succession, 31% indicated that increasing diversity was part of the talent and succession analysis, and 5% included an employee health and safety metric. By comparison, only 6% referred to environmental sustainability. Both studies have small samples and face classification challenges given the breadth of the HCM concept, and the figures do not show whether the oversight was effective. They do show that companies were formalizing responsibility and connecting executive pay to workforce outcomes, so that HCM is becoming hard wired into a wide array of board practices.

The compensation committee is a plausible home for parts of HCM, but it is not an automatic or complete solution. Many boards have chosen it, and commentators have urged that it be reconceived to focus on employee related matters. By considering both executive and non-executive compensation, the committee can ensure broad internal consistency of compensation practices and appropriate gainsharing between executives and rank and file employees. For example, it may be more difficult for committee members to sign off on below average employee pay if they have just approved CEO pay at the 75th percentile of the peer group, or to oppose employee unionization if they have just paid for a lawyer to assist the CEO in bargaining against the firm. Boards as a whole, however, have for decades presided over decisions that do not reflect gainsharing, and the argument depends on contested substantive outcomes. Procedural and institutional considerations also militate against assigning most or all HCM oversight to the compensation committee. The committee already carries statutory responsibilities for executive compensation and the compensation discussion and analysis, and although workforce compensation is a natural fit for the committee, such matters comprise a relatively small part of HCM’s overall scope. Companies should instead disaggregate HCM, spell out oversight duties, and allocate responsibility accordingly. A dedicated HCM committee may become necessary if HCM reporting grows more detailed, and an ESG or sustainability committee covering HCM offers another model.

Human capital becomes a mission critical oversight matter when a specific workforce related risk is central to the company’s business model, operations, or regulatory compliance. The mission at each company is different, so what is mission critical differs as well. Food safety was mission critical for an ice cream maker in Marchand; compliance with FDA regulations governing clinical trial data was mission critical for a pharmaceutical company in Clovis; and Delaware courts have treated sexual harassment and employee safety and welfare as mission critical risks in the McDonald’s litigation. Under Caremark, liability remains difficult to establish. Plaintiffs must show that directors or officers utterly failed to implement any reporting system or consciously failed to monitor one they implemented. Bad faith is required, and recent commentary suggests that a successful claim requires egregious facts following an extreme corporate trauma. “Mission critical” is not a term of art, and the courts attached it to compliance failures, regulatory risk, operations, and products alike. The better reading is that it sits on a continuum between business essential and survival critical, so a risk need not endanger the company’s survival. HCM as a catch-all label is too broad to guide the analysis. Potential breaches include failing to identify the HCM factors that matter at the company, implementing a board level reporting system that does not correspond to the identified factors, and failing to monitor the system in place.

Marchand, Clovis, and the McDonald’s litigation suggest that the presence of catastrophic impacts on human constituencies, employees as well as customers, is a key differentiator between oversight claims that survive a motion to dismiss and those dismissed outright. In Marchand, an ice cream company’s products caused a listeria outbreak and multiple deaths. The Delaware Supreme Court allowed the claim to proceed because the company had no board committee, full board process, or reporting protocol for food safety, a matter the court called essential and mission critical. Clovis involved a board that consciously ignored red flags revealing a mission critical failure to comply with FDA regulations regarding the veracity of clinical trial data, and the Court of Chancery allowed that claim to proceed as well. In 2023, the McDonald’s decision confirmed that Caremark duties apply to officers as well as directors, and commentators read it as treating sexual harassment and, more generally, employee safety and welfare as mission critical risks. Although most Caremark claims still fail at the motion to dismiss stage and bad faith remains required, the cases indicate that human health, safety, and culture can be legally significant oversight subjects. The cases also operate as soft law: law firms and other advisers translate them into best practices for boards that reach well beyond what the law requires.

Imposing too many HCM responsibilities on the board can reduce rather than improve oversight. Directors serve part time and face limits of expertise and bandwidth. Human capital is a catch-all term that covers a wide array of topics, including compensation, training, health and safety, diversity, and culture, as well as different populations such as non-employee contractors and supply chain workers. Treating every topic as a board responsibility risks crowding out the matters that are genuinely critical to the company. The problem also follows from Caremark’s two part structure. Boards must implement reporting and information systems, but they must also monitor and oversee those systems. Overloading the board with nonessential subjects in an overbroad effort to satisfy the first part may prevent it from meeting the second because of limits on expertise or bandwidth. Full time management may be better placed to oversee HCM policies once they reach a certain level of technical specificity. The better approach is to disaggregate HCM, determine which matters deserve board time, spell out oversight duties, and allocate responsibility among management and board committees accordingly. Oversight should be designed around the company’s business model and operations rather than a generic checklist supplied by an outside party such as an asset manager.

Isomorphism describes convergence in organizational structures and practices for institutional rather than competitive reasons. Coercive isomorphism results from external pressures or mandates. Mimetic isomorphism occurs when organizations copy one another, often under conditions of uncertainty and in a quest for legitimacy. Normative isomorphism stems from the development of best practices, often in a professional context. The board-level changes brought about by the HCM movement bear the characteristics of both mimetic and coercive isomorphism: BlackRock and, to a lesser extent, other market players pressed firms to comply with a prescriptive HCM rulebook and declared that they would hold boards accountable, while firms facing uncertainty converged on similar practices. Normative processes were also at work but had produced little usable guidance. Given the heterogeneity of firm business models, there is little reason to expect consistent performance gains from copying. The concern is especially acute when the source of pressure has limited capacity or expertise. BlackRock reported a stewardship team of about 45 analysts covering approximately 16,000 companies across 85 markets. As a universal owner, it also has incentives to maximize the value of its entire portfolio rather than that of individual firms. Coordinated and deliberative development of best practices can still prevent mimetic and coercive approaches from setting in.

Item 101(c)(2)(ii) of Regulation S-K requires a public company to provide a description of its human capital resources, including any human capital measures or objectives that it focuses on in managing the business, to the extent such disclosure is material to an understanding of the company’s business taken as a whole. The adopting release noted that, depending on the nature of the company’s business and workforce, relevant information may include measures or objectives that address the development, attraction, and retention of personnel, but emphasized that these are nonexclusive examples of subjects that may be material rather than disclosure mandates. The SEC declined to define “human capital,” reasoning that its meaning may evolve over time and may be defined by different companies in ways that are industry specific. It also declined to prescribe specific metrics or a designated standard or framework. The rule is open ended and principles based, establishing a general obligation without substantive guidance for applying it. The antifraud provisions continue to apply to both required and voluntary disclosure. On adoption, Chairman Clayton said he expected meaningful qualitative and quantitative disclosure, including metrics that companies actually use in managing their affairs, a benchmark against which the rule’s performance can be assessed.

The 2020 HCM rule was significant because, for the first time, public companies were called on to disclose broad information about their workforce. Until 2018, the only workforce specific item in the federal disclosure regime was the total number of employees. The CEO to median worker pay ratio, first required in 2018, added only minimal information about nonexecutive compensation. The 2020 rule was a formal acknowledgment of investor demand for HCM disclosure, and the rulemaking process, including the work of the Investor Advisory Committee and extensive investor feedback, demonstrated the significance of HCM as a mainstream investor concern. The rule also reflected unusual agreement at the Commission. The Chairman and the two Republican commissioners voted in favor, while the two Democratic commissioners voted against the broader Regulation S-K amendments because the HCM provision did not go far enough. That agreement is notable because virtually all new disclosure requirements adopted during the 2010s, including those mandated by the Dodd-Frank Act, were opposed by Republican commissioners on the ground that the topics were not material to investors. The development was nevertheless incomplete. By declining to define the field or require common measures, the SEC brought workforce information into Regulation S-K without developing an information generating framework.

Georgiev has criticized the SEC’s HCM rule as too open ended because it prescribes no specific information, metrics, definitions, or reporting framework. Companies must decide which workforce matters are material even though HCM includes many distinct subjects and the SEC offered no guidance for making HCM materiality determinations. The resulting discretion lowers the risk that nondisclosure will be detected or produce liability. Early evidence bears this out: the rule elicited more disclosure, but the disclosures vary considerably across firms, rely on generic descriptions, and remain low in numerical content, with 28% of firms disclosing no metrics at all. The design also requires each company to devote management time and legal input to putting every piece of HCM information through the TSC Industries test. Flexibility has legitimate advantages because workforce models differ by industry and firm, but without required items or standard definitions the rule can produce more words without increasing informational integrity. The SEC’s stated reason for rejecting a framework, that prescriptive requirements would not ensure comparability given how differently companies define and calculate measures, is illogical on its face. Investors cannot easily compare firms or determine whether silence reflects immateriality or a failure to comply with the rule.

Investor input was central to the SEC’s decision to adopt an HCM rule, although it had less influence on the final design. Some investors raised workforce disclosure in comments on the SEC’s 2016 Concept Release. In July 2017, the Human Capital Management Coalition submitted a rulemaking petition focused specifically on HCM disclosure. SEC Chairman Jay Clayton said in March 2018 that he would like to see more disclosure on human capital, and the SEC Investor Advisory Committee formally adopted a detailed recommendation in March 2019. The Committee suggested that rulemaking begin with concept releases and roundtables; the SEC skipped those steps and proposed a rule in August 2019 as part of a broader Regulation S-K package. The proposal generated 98 individual comment letters and 2,847 form letters. With the exception of three large companies, the comment file supported some form of HCM disclosure; even the U.S. Chamber of Commerce’s Center for Capital Market Competitiveness was cautiously supportive. A number of commenters, including major investors, favored a hybrid or dual approach combining principles based narrative with prescriptive line items or metrics. The SEC instead hewed closely to the principles based approach of the proposal. Investor input thus helped establish HCM as a mainstream investor concern, but the agency did not adopt the structured framework many investors requested.

The SEC Investor Advisory Committee’s March 2019 recommendation linked workforce disclosure to the rise of intangible assets and the transition from an economy based almost entirely on industrial production to one increasingly based on technology and services. It cited estimates that the implied intangible asset value of the S&P 500 had grown from an average of 20% in the 1970s to an average of 84% by 2015. The Committee observed that the SEC treated human capital as a cost even though it is increasingly viewed as an investable asset. It discussed two approaches. A principles based requirement could ask companies to describe their HCM policies and strategies for competitive advantage and comment on progress in meeting corporate objectives. Alternatively, the SEC could mandate specific standardized metrics such as voluntary and involuntary turnover, internal hire and promotion rates, the frequency, severity, and lost time due to injuries, illnesses, and fatalities, the percentage of first-tier suppliers audited for safety and health compliance, average training hours per employee, race and gender diversity data, and standardized employee satisfaction surveys. Rather than settling these questions itself, the Committee recommended an extensive consultative process involving investors, issuers, and the academic community. Chairman Clayton supported the initiative; six Committee members dissented. The SEC adopted a general disclosure obligation but followed neither the metric approach nor the recommended process.

Materiality alone is an inadequate guide for HCM disclosure because it does not identify the relevant workforce categories or define the metrics to be reported. The familiar test asks whether there is a substantial likelihood that a reasonable investor would consider information important or view it as significantly altering the total mix of information available. That formulation is elegant and superficially intuitive, but HCM is broad, unlike any other type of information in the disclosure regime, and not covered by the accounting regime. Existing materiality guidance therefore offers little help. The disclosure decision is binary by necessity, but materiality is not; it often exists in a gray, probabilistic space. The decision thus often weighs the costs of disclosure against the risk of liability, and with an open ended rule the risks of detection and liability are substantially lower. A common baseline is also necessary for making the materiality judgment itself: a company cannot know whether its turnover or accident rate is unusual without the same information about other firms. The better approach is to treat HCM as a broadly material subject area, mandate a limited set of common categories and metrics, and use materiality in a targeted way to qualify specific items and prevent overdisclosure, as the SEC’s other information generating frameworks do.

Materiality serves different functions in litigation and rule design. In litigation, a court applies the concept after the fact to determine whether a particular misstatement or omission can support liability. Courts apply judge-made heuristics and, for practical purposes, require evidence that the misstatement or omission affected the stock price. The TSC Industries formulation was developed for that ex post inquiry, where it works reasonably well, but it is of little use in setting disclosure requirements ex ante. Rule design is prospective. The SEC must decide in advance what information companies should collect and report across many industries and future factual settings, a task involving complex policy judgments that require both regulatory expertise and democratic legitimacy. The liability test cannot operate as an automatic, self-executing disclosure criterion. It developed detailed information generating frameworks for oil and gas reserves, asset backed securities, executive compensation, financial statements under Regulation S-X, and management’s discussion and analysis. Those frameworks specify particular items and use materiality in a targeted way to prevent overdisclosure rather than subjecting each element to a separate TSC Industries test. HCM presents the same need. A regulator must first build an informative structure; courts can then use materiality to adjudicate alleged misstatements or omissions within that structure.

The “total mix of information” concept implies that HCM rule design must create an informative baseline before company specific materiality judgments can work. TSC Industries asks whether information would significantly alter the total mix of information made available, and the test thus presupposes that a total mix exists. Voluntary disclosure alone cannot produce a balanced picture of the underlying reality that could serve as that baseline. The problem is clearest for relative measures. A company cannot determine whether its rate of workplace accidents is material without knowing how the rate compares with other firms, yet under a principles based rule those firms’ disclosure obligations are also contingent on a materiality determination, so firms’ materiality judgments are inextricably linked. Even where several firms report a rate, comparison is misleading unless they use the same definition of an accident and cover the same employee base. TSC Industries thus does not prohibit the SEC from mandating items that eschew item-by-item materiality testing; it practically requires the SEC to design an information generating framework that produces the appropriate total mix. That mix must contain information of various levels of significance, not only information that is independently material, because materiality is relative and comparative judgments require a range of information. Without a proper total mix, the enforcement structure of securities regulation struggles to work.

Standardization and comparability are essential because most investment and voting decisions involve relative judgments. A turnover rate, safety rate, training amount, or workforce cost has limited meaning without historical trends and peer benchmarks. Standardization requires companies to use the same definitions and to cover the same employee base. For example, a workplace accident rate is not comparable unless firms use the same definition of an accident in terms of severity and the same employee base. The same is true of voluntary and involuntary turnover and annual amounts spent on training and compensation, all of which are relatively easy to standardize. Comparability also bears on materiality: a firm cannot judge whether its own accident rate is material without knowing how it compares to the rate at other firms, so even individual materiality and disclosure judgments become difficult without comparable information. The SEC’s adopting release reasoned that prescriptive requirements would not ensure comparability because registrants define and calculate measures differently, but that gets the logic backward. The purpose of a standard or framework is to ensure that firms with different operational profiles define and calculate information consistently; comparability follows from the framework rather than preceding it. Not every HCM measure can be standardized, but the important categories that can be standardized should be.

Georgiev has proposed that a hybrid HCM disclosure rule would combine prescriptive line items with principles-based, company specific disclosure. The prescriptive component would call for specific metrics or categories of information in order to make firm specific information more useful and promote some degree of comparability across firms. Candidates include measures that are easy to standardize, such as the rate of workplace accidents, voluntary and involuntary turnover, and annual amounts spent on workforce training and compensation, defined consistently across firms. The principles-based component would leave room for company specific discussion. This approach resembles the SEC’s treatment of other disclosure areas: the summary compensation table and the oil and gas reserves item prescribe specific elements without subjecting each one to a separate materiality test, which also spares companies the costly exercise of putting every item of workforce information through the materiality sieve. During the 2019 rulemaking, a number of commenters, including investor groups such as the Human Capital Management Coalition, CalPERS, and the AFL-CIO, supported a “hybrid” or “dual” approach. The SEC instead hewed closely to the principles-based approach of the proposal. A hybrid framework need not begin with an exhaustive list. The agency could mandate a limited set of information categories and metrics at first and revisit the matter on a periodic basis.

A comply or explain model could improve HCM disclosure by specifying required metrics while allowing a company to opt out of a particular metric so long as it states a valid reason for doing so. The approach can be understood as a system of pre-set defaults, a favored technique in state corporation and other entity statutes. It also produces more information than silence. Under the current rule, the absence of turnover, safety, or training data is ambiguous. Investors cannot tell whether the company considered the item and found it immaterial, withheld it because of the low risk of detection and enforcement, or omitted it for some other reason, such as a lack of regulatory guidance, counsel’s misunderstanding of the rule, or faulty disclosure controls. An affirmative representation that a particular metric is not material for a particular firm is much more helpful to investors than the observed absence of the metric from an unstructured narrative, and it makes public and private enforcement of disclosure violations easier. The approach has been used effectively in the United Kingdom and elsewhere. Under it, a firm could avoid disclosing an ill fitting metric, but it should not be able to avoid disclosure of otherwise relevant information for opportunistic reasons. The model offers a middle ground between highly prescriptive line items and the existing open ended, principles-based rule.

A false positive occurs when a rule requires disclosure of information that is immaterial for a particular company. A false negative occurs when material information goes undisclosed. Because disclosure requirements cannot be calibrated with precision, the SEC must decide which kind of imprecision is worse, overdisclosure or underdisclosure. The issue deserves systematic analysis, but there is reason to believe that the cost of false negatives is greater than the cost of false positives. The costs of requiring immaterial information are an increased regulatory burden on firms and, arguably, investor information overload. The first concern is mitigated because firms already possess at least some of the information that might be mandated: most employers already report demographic data by ethnicity, race, gender, job category, and salary band in the EEO-1 process, and companies use many metrics to evaluate their HCM strategies. The second concern rests on a model of investor information processing that does not reflect present day reality. Under an open ended rule with no prescribed categories, moreover, the risks of both detection and liability for nondisclosure are substantially lower, which invites strategic nondisclosure. Given that and the resource intensive nature of materiality determinations, the argument that basic information items should not be prescribed because they may not be universally material is unpersuasive. The SEC should avoid rules that elicit too little information, even at the expense of occasional overdisclosure.

Georgiev has proposed that a second round of SEC HCM rulemaking should be a dedicated and deliberative process involving multiple stakeholders, including investors, issuers, the academic community, and financial accounting standard setters, along the lines of the multi-stakeholder model the SEC used to develop its oil and gas disclosure framework. The agency should first disaggregate HCM and promote a focused discussion of individual categories, such as training and development, diversity and inclusion, and workforce compensation, because it is much easier to argue that a metric within a category, such as turnover or total compensation expense, is material than to make the same argument for an entire detailed framework. It should mandate a limited set of categories and metrics at first, standardize those that can be standardized, and revisit the matter periodically. Financial accounting deserves attention because workforce compensation and training spending are lumped into broad expense categories that obscure relevant information. The framework should cover the shadow workforce of temporary, vendor, and contingent workers as well as traditional employees, and should address the complementarities and substitutability between human capital and AI enabled technology. A comply or explain option offers a middle ground for metrics that do not fit every firm. The goal is disclosure with informational integrity, meaning accurate, comprehensible, and complete information that is comparable across firms. Despite its limited experience with HCM, the SEC remains best placed to serve as a nexus for coordination among the many participants in the HCM movement.

In September 2023, the SEC Investor Advisory Committee adopted recommendations aimed at enhancing the quality of HCM disclosures and giving investors more comprehensive and comparable HCM information. The recommendations covered four principal areas. First, workforce composition: companies should disclose the total number of employees, categorized by full time, part time, and contingent workers. Second, turnover metrics: companies should disclose workforce turnover rates or similar stability metrics that reflect employee retention and organizational stability. Third, compensation details: companies should report the total cost of the workforce and break down major compensation components to provide insight into their financial commitments toward human capital. Fourth, demographic information: companies should share workforce demographic data to help investors evaluate diversity and inclusion efforts and access to talent. The recommendations address some of the gaps identified in an analysis of the evidence since 2020, and that analysis supports each of them. SEC Commissioner Hester Peirce criticized the recommendations, citing concerns about consistency across diverse industries, regulatory burden including on smaller companies, and deviation from investor focused priorities. Those objections overlook the increasing relevance of workforce information to investors, and the burden concern is likely overstated because many companies already disclose HCM information and a standardized framework would reduce ambiguity. As with any policy proposal, the recommendations would need to be tested and sharpened through the SEC’s standard notice and comment rulemaking process.

A mixed methods approach is useful because no single method can fully evaluate a complex disclosure regime. Large sample quantitative studies can measure prevalence, length, readability, numerical intensity, and market associations across thousands of firms. They face classification challenges, however, such as what should count as quantitative disclosure, and they cannot explain why a company omitted information: whether it found the item immaterial, withheld it because of the low risk of detection or enforcement, or omitted it because of a lack of regulatory guidance, counsel’s misunderstanding of the rule, or faulty disclosure controls. Case studies and SEC comment files can address those questions, but on their own their evidence is often more suggestive than conclusive. The mixed methods design deliberately triangulates different forms of evidence to address these limits. The six sources used here are a meta-analysis of large scale quantitative studies, hand collected data from the SEC review process for IPO filings, a case study comparing Amazon’s filings with information in the public domain, evidence from the shareholder proposal process, recent labor market developments, and recent developments in Delaware jurisprudence. The IPO study tests whether the rule gave sufficient guidance, the Amazon study examines materiality gaps, proposals reveal investor concerns, labor market evidence identifies new topics, and the fiduciary cases illuminate governance consequences. The point is not to reach unassailable conclusions but to widen the aperture and identify implications with a broader scope.

The aggregate evidence shows that the 2020 rule caused companies to disclose more HCM information, but did not create a consistent, sufficiently quantitative, or readily comparable baseline. Studies found wide variation in disclosure length, topics, specificity, numerical intensity, readability, and similarity, including among firms in the same industry. Disclosures tended to be very positively toned, and a nontrivial number ran to fewer than 100 words. Quantitative reporting increased after the rule, particularly for turnover and diversity measures, yet 28% of firms still disclosed no workforce metric. The metrics that were reported did not converge around a common set within industries. Other research found that disclosures responded to changes in the underlying stock and flow of employees and that firms that had previously under-disclosed increased their reporting. Those findings confirm that mandatory disclosure changes behavior, but they say nothing about whether the rule is eliciting the necessary level of disclosure or about the informational integrity of what is produced. A study of the 100 largest public companies points the same way: only ten topics were covered by a majority of those firms, and for all but one of the eight topics with quantitative disclosure, fewer than one third supplied numbers. The rule generated additional reporting, but its open ended design allowed companies to comply through dissimilar narratives and selected measures that left investors unable to compare firms or identify material omissions.

The Demers study examined a comprehensive sample of over 3,600 firms during the first two years of the SEC mandate. It found that disclosure characteristics vary considerably across firms in word length, topics covered, specificity, numerical intensity, and readability. Even within the same industry, objectively quantified linguistic measures of similarity indicated that disclosures were quite dissimilar. The narratives tended to be very positively toned and inherited many of the properties of the rest of the firm’s disclosures. Consistent with investor complaints, they were generally not numerically intensive, and a nontrivial number contained fewer than 100 words. Rather than improving on average over time, the disclosures showed significant regression toward the mean on each qualitative dimension. Firms with relatively poor disclosure improved, while firms with better first year disclosure diminished its quality in the second filing, on average. The authors suggested that the better reporters learned that they had overshot the lower-than-expected standard. The policy question this raises is whether the mean level of disclosure is the optimal one. The authors’ own framing is that unless the SEC is content with an average level of disclosure below what better disclosing firms were clearly able and willing to provide, a more specific disclosure standard should be developed. The study does not attempt to determine whether the observed mean is optimal, which is why other sources of evidence, including qualitative evidence, remain necessary.

The Bourveau study analyzed the disclosures of over 2,393 firms between 2018 and 2023, a period covering reporting both before and after the HCM rule went into effect. The percentage of Form 10-K filings containing quantitative HCM metrics rose from 40% to 72%. Most of the increase came from added metrics on employee turnover and diversity, equity, and inclusion. Even after the rule, however, 28% of firms disclosed no human capital metric. The average number of metrics per 10-K increased from one before regulation to 2.5 by 2023, the third reporting season after the rule’s adoption. The average number of financially material metrics, as identified by SASB, rose only from approximately one to 1.4, even though SASB recommends approximately four human capital metrics for disclosure, with the number and the metrics themselves varying by industry. This implies that firms are under-disclosing relevant information. The study also found that disclosures within the eleven SASB industry groups did not coalesce around a common set of metrics, so heterogeneity exists within each industry group as well as across the sample, which limits investors’ ability to compare firms. The study did not count metrics on unionization or geographic breakdowns, which some firms disclosed voluntarily before the rule, or total headcount, which was already required. The findings show a regulatory effect without demonstrating adequate disclosure: more companies supplied numbers, but the numbers were uneven and insufficiently standardized.

The 2023 Gibson Dunn study reviewed the 100 largest public companies and found extensive narrative reporting but much less quantitative reporting. Ninety six % discussed talent development, 96% diversity and inclusion, 94% attraction and retention, and 88% compensation and benefits. Other common subjects included culture monitoring at 64%, workplace health and safety at 61%, governance and organizational practices at 51%, and employee mental health at 50%. Quantitative reporting was much rarer. Sixty five % supplied gender diversity statistics and 60% supplied race or ethnicity statistics, but only 20% disclosed a turnover rate, 17% quantitative compensation, 17% a quantitative pay gap, 16% the full time and part time split, and 14% quantitative talent development. Only ten topics appeared at a majority of the companies, and only three appeared at more than two thirds. Eight subjects involved quantitative disclosure, and seven of those were reported numerically by fewer than one third of the firms. Year on year comparisons showed steady but small increases in the number of firms covering most topics. The study covers only the largest companies, but those firms represent a substantial share of total equity market capitalization, and smaller firms usually copy the disclosures of larger firms. Its findings confirm the inconsistency and heterogeneity identified by the large sample studies.

Georgiev’s registration statement study examined SEC comment letters on registration statements by domestic issuers during the first twelve months of the HCM rule, from November 9, 2020 through November 8, 2021. It identified 15 issuers whose initial filings contained very limited HCM disclosure and drew an SEC comment to expand the discussion in line with Item 101(c)(2)(ii) of Regulation S-K. Every issuer agreed to submit revised disclosure rather than contesting the comment. The revisions were much more extensive, but generally consisted of soft statements about talent, inclusion, values, development, teamwork, or the importance of employees that can still be described as boilerplate. One revision called talent vital, described employees as a significant asset, and stated a goal of an equitable and inclusive environment for career development. Without more, those generic statements could describe almost any firm’s governance philosophy. The study was limited to the first year because firms are more likely to start copying other firms’ HCM disclosure after that period; early disclosures are more likely to reflect a good faith materiality assessment under the open ended rule. The SEC comment produced longer disclosure, but not more specific disclosure. The weight of the evidence should not be overstated, but it is suggestive of deficiencies in the design of the original rule and complements the findings of the large sample studies.

Georgiev’s Amazon turnover case study illustrates how a material workforce risk can remain outside SEC filings when the rule does not require a standardized stability measure. Where publicly available information appears material but was not disclosed, nondisclosure points to a failure to comply with the open ended rule rather than to a lack of materiality. Amazon disclosed that constrained labor markets and staffing difficulties could affect operations, but it did not report a workforce turnover rate. A New York Times investigation placed annual turnover at approximately 150%, more than double the annual turnover rate of other companies in the industry. Amazon also omitted turnover from a sustainability report that purported to follow the applicable SASB framework, even though that framework called for voluntary and involuntary turnover data. Amazon’s own executives reportedly feared the firm would run out of workers to hire in some important U.S. markets if the rate persisted. A 150% rate implies roughly 525,000 new hires each year; at industry estimates of $2,500 to $6,000 per hire, the annual cost of turnover is approximately $1 billion to $3 billion, an amount not reported as a standalone item in Amazon’s financial statements. The company stops guaranteed wage increases for warehouse employees after three years and until recently paid workers to resign under a “Pay to Quit” program if they agreed never to work at Amazon again. Generic staffing risk language is not a substitute for a comparable turnover metric.

Georgiev’s Amazon safety case study illustrates how selective narrative and spending figures can present an incomplete picture without standardized, comparable rates reported over consistent periods. In his 2020 letter to shareholders, Jeff Bezos announced a goal of making Amazon “Earth’s Safest Place to Work,” reported that 40% of workplace injuries were related to musculoskeletal disorders, and stated that the WorkingWell program reduced those disorders by 32% from 2019 to 2020. The company’s sustainability website highlighted more than 6,000 safety professionals, $11.5 billion spent on COVID-19 safety measures, $125 million in 2020 safety capital projects, and $300 million in 2021 safety projects. In the absence of context, those figures do not show whether the measures were meaningful investments or safety themed greenwashing, and the available evidence points to the latter. Data reported to OSHA provided a different view. In 2020, for every 200,000 hours worked at an Amazon warehouse there were 5.9 serious incidents, nearly double the rate at non Amazon warehouses. The following year Amazon disclosed its 2019 and 2020 injury rates and emphasized the decrease between those years, while omitting that the overall injury rate had increased between 2020 and 2021. Investigations also found higher injury rates at warehouses with robots and injury spikes during Prime Day and Cyber Monday. The evidence does not conclusively establish that Amazon’s disclosures were deficient, but it shows how investors can receive favorable inputs without the comparable outcome measures needed to evaluate them.

Recent HCM shareholder proposals have addressed a wide range of subjects, including sexual harassment, nondisclosure and nondisparagement clauses, paid sick leave, health and safety, reproductive health risks, workforce diversity, wage gaps, EEO-1 reporting, working conditions, and racial or gender equity audits. Several categories attracted substantial support. In 2022, proposals seeking to end the use of concealment clauses received average support of 48%. They passed at SunRun with 98%, Twitter with 69%, and IBM with 65%, while an Apple proposal received 50% of votes cast. There were eleven employee health and safety proposals that year, including six seeking paid sick leave. Four of the six were withdrawn following settlements, while two went to a vote and failed to gain majority support. Proposals on reproductive health asked companies to report on the employment related risks and costs associated with state level restrictions on access to reproductive healthcare. Vote totals are not the whole story. A number of the most viable proposals are settled and never voted on, or receive management support and become management proposals, so the proposals that reach a vote are skewed toward the less viable ones. The changing agenda also reveals investor concern with workforce matters that firms have not disclosed under the SEC’s open ended rule.

Aggregate shareholder vote data should be interpreted cautiously because proposal substance, firm circumstances, regulatory rules, settlements, and ownership structure all affect the reported result. Between 2018 and 2022, filed HCM proposals rose from 62 to 119 before declining to 99. Average support moved from 22% to 39% and then 33%. Those figures do not map cleanly onto investor interest, for four reasons. The rules governing the shareholder proposal process have been in flux, with eligibility criteria, no action relief, and grounds for exclusion changing more than once over the past decade. Many of the most viable proposals are settled and never voted on, or become management proposals, leaving the less viable proposals for a vote. Firms differ in business model and workforce practices, so the companies at which a given HCM issue is salient vary by issue and by year, and founder or insider ownership can distort the headline percentage: at Amazon in 2022, a working conditions proposal received 44% overall support, which translates into majority support from independent shareholders given the 16.3% voting stake held by Jeff Bezos and the stakes of other insiders. Finally, proposals on the same topic can differ in their reach, intrusiveness, and cost. Year to year averages across dissimilar proposals and companies can obscure these dynamics and should not be treated as a referendum on HCM disclosure generally.

HCM disclosure should cover contingent workers because many firms rely on temporary workers, vendors, independent contractors, franchisee employees, and subcontracted workers who do not qualify as employees but are integral to the company’s operations. The tech industry relies extensively on temporary, vendor, and contract workers, who in many instances outnumber a firm’s full time employees. Alphabet/Google, for example, employs roughly the same number of contractors as direct hires, a fact never disclosed in its SEC reports despite investor interest. These workers often perform similar tasks as full time employees but do not receive the same benefits or protections and are excluded from career development and participation in the company culture. The disparity raises concerns about wage equity and compliance with labor laws, and it may create divisions within the workforce that undermine collaboration, morale, and retention. If these issues are problematic for worker morale and performance, they are also likely to be material to investors. Public pension funds and their affiliates have urged disclosure covering the “material workforce” rather than employees alone. The information gap is compounded by the growth of private markets: if the shadow workforce were employed by other public companies, their disclosures would fill the gap, but large private firms provide no such disclosure. The 2020 rule is ill equipped to cover this structural shift, and the SEC’s Investor Advisory Committee has recommended that firms disclose total headcount categorized by full time, part time, and contingent workers.

Artificial intelligence changes the case for human capital disclosure because AI enabled technologies learn from and, in effect, appropriate workers’ human capital, and they can serve as complements to human workers and, problematically, as substitutes for them. AI systems often rely on data inputs generated by human workers, including skills, expertise, and decision making patterns. When that data is used to train AI, workers’ intellectual contributions are appropriated without explicit consent, adequate compensation, or acknowledgment. Because institutional investors increasingly treat HCM as a material factor for long term value creation, overreliance on AI as a substitute for human labor without equitable consideration for displaced workers may create reputational risk and diminish a firm’s ability to attract and retain talent. Overestimation of AI’s capabilities and underestimation of human input also distort valuation: investors may overvalue firms claiming to replace human labor with AI, producing mispricing and market volatility if those promises fail to materialize, and firms with excessive reliance on AI face operational risk if the systems fail. One consulting study estimates that 70% of the focus in an AI transformation should be on people and processes. More broadly, AI is a direct and much cheaper substitute for human capital, which gives capital a structural advantage over labor that corporate law is ill equipped to address. A revised HCM framework should attend to the complementarities and substitutability between human capital and AI enabled technology.

Financial accounting obscures human capital spending because workforce training and employee compensation are lumped together with other expenses on the income statement rather than presented as distinct items. Training is part of selling, general, and administrative expense, a catchall category that covers overhead and often contains expenses arising from inefficiencies. Investors view lower SG&A as a positive signal, so a firm can improve its short term bottom line by cutting training even though this is damaging in the longer term. Research and development, by contrast, is also expensed but listed as a separate line item. Direct labor is included in cost of goods sold, while all other labor costs enter SG&A, so investors cannot gauge with any specificity what a firm pays its workers; according to data cited in an SEC comment letter, only 15% of S&P 500 firms report employee compensation expense voluntarily. These classifications also affect ratios such as gross margin, operating margin, earnings per share, and return on equity. Human capital is absent from the balance sheet for a different reason: valuing knowledge and skills is difficult, and a firm’s control over employees, grounded in contract and agency law, differs from its control over machines or intellectual property, so human capital does not fit the technical definition of an asset. Separate disclosure of training and compensation expense raises no valuation issues. Recognizing human capital as an asset is harder, but FASB added operating leases to the balance sheet in 2016, and an employment contract likewise allows temporary use of a productive asset without conveying ownership.

Human capital management cannot substitute for labor law or a broader worker protection and development agenda. HCM has a role to play in improving the visibility and standing of workers within firms, but, unlike past labor focused reform initiatives, it is grounded in traditional notions of shareholder wealth maximization and investor protection. HCM has drawn support from actors focused on much bigger problems, such as wealth inequality, economic insecurity, and inadequate workforce training, which have at best an attenuated nexus to corporate law; its rise is in part a symptom of regulatory vacuums in other areas of law, and it would be unrealistic to expect HCM to fill them. Some HCM initiatives may even be detrimental to workers, because the interests of employees and shareholders are not always congruent. Reducing turnover protects the firm’s human capital investments, but it may not be optimal for society if achieved through means that hinder employee mobility and the dissemination of knowledge across the economy. Enhanced HCM reporting may also increase worker surveillance and be used to extract more from workers or replace them. Overreliance on HCM may crowd out more targeted policy interventions. What is needed is a governmental human capital development and worker protection agenda, drawing on new government programs, labor law, tax law, antitrust law, a new body of human capital law, and corporate law reform. Such an agenda would also improve the HCM movement by modulating expectations for what management, boards, and the SEC can realistically achieve.