The biggest current issue in the boardroom is human capital, and not just because the SEC mandated human capital disclosures for the first time in the last proxy filings. Many companies are having trouble filling jobs left open by the pandemic.
I discussed this recently with Charles Elson, our executive editor-at-large, and Bob Rock, our publisher. Both serve on boards and know firsthand what’s at the top of the board agenda. They both believe that human capital risk oversight is now a critical function of the board. Beyond 10-K disclosure requirements, that’s because these labor shortages affect corporate America at every level.
When I’m out these days, I see the “help wanted” signs in windows, mostly for service industries like restaurants, convenience stores and hotels. Often, they are next to signs that announce new hours of operations because there isn’t enough staff to return to pre-pandemic hours.
Many supply chains, too, are short on workers (in addition to various supplies and computer chips). At California ports, ships carrying both products and raw materials are backed up outside of harbors because there aren’t enough people to unload them. And of course, the delay in delivery on one end of the shipment causes a return-trip delay, and the problem magnifies.
This holds true for domestic products as well. When demand for gasoline plummeted, for instance, fuel companies reduced deliveries, which led to a cutback on drivers. Now that gasoline consumption has rebounded, getting those drivers to return to work has been challenging — even with offers of significantly higher salaries.
While boards have traditionally focused on hiring and firing the CEO, and the comp committee has focused on CEO and senior executive compensation, many boards and comp committees have broadened their purview — and their charters — to include oversight of human capital throughout the organization.
Boards are looking deeply into the reasons people aren’t applying for jobs lower in the organization. What issues are there? Can management to measure the long-term costs to the organization and supply chain as a result of supposedly cost-saving layoffs?
The CHRO has now become a key boardroom guest, and directors want to know what specifically is being done to address these now-critical issues.
While the SEC now requires companies to report on human capital, it has not outlined what must be disclosed, aside from an employee headcount. So it’s interesting to see what companies have chosen to focus on as a guide to what’s being discussed in the boardroom.
PwC examined 2,000 disclosures and laid out the areas of human capital that companies are reporting on the most (see the chart below).
While there seems to be some growing consensus around the most important metrics, such as employee lifecycle, safety and compensation, there is still a wide variance in how companies are treating these disclosures.
This disconnect between the increased importance of human capital to the board and the types of human capital metrics and disclosures reported to regulators and investors is probably a timing issue (as well as an issue of loose initial SEC guidance).
As proxy season approaches once again, corporations will file their second human capital disclosures. It will be interesting to see what they contain, and how they reflect the board’s increased interest in and involvement with the overall workforce.
Given what we’ve seen in the past year, and especially in the slowing of the recovery because of a critical labor shortage (or a disconnect between workers and available jobs), what will boards say they have done to manage this crucial risk to corporate success?
April Hall is managing editor of Directors & Boards.