By Bill Flook
The House Financial Services Committee on February 28, 2020, advanced disclosure bills that would require public companies to give investors more information about their human capital management and their political spending.
H.R. 5930, the Workforce Investment Disclosure Act of 2020, sponsored by Rep. Cindy Axne of Iowa, passed on a 33-25 vote. H.R. 5929, the Shareholder Political Transparency Act of 2020 by Rep. Bill Foster of Illinois, also cleared the panel on a vote of 33 to 25.
Both measures are part of a push by Democrats on the committee, frustrated by inaction at the SEC, to mandate an expansion of corporate disclosures in areas that are today subject to scant or no reporting requirements. Critics, including the U.S. Chamber of Commerce, say the information is not material to investors.
Foster’s Shareholder Political Transparency Act would direct the SEC to issue rules requiring public companies to file quarterly reports that include a description of any political expenditures made during the preceding quarter, the date of the expenditure, and the amount. If the contribution was made to support or oppose a particular candidate or trade group, the issuer must disclose the name and party of that candidate and the office they are seeking or the name of the trade group. Also under the bill, the SEC would issue rules requiring public companies to include in annual reports a summary and description of each political expenditure in the preceding year above $10,000.
Foster’s bill, and others like it, seek to counter the Supreme Court’s 5-4 decision in Citizens United v. Federal Election Commission in 2010, which lifted restrictions on independent political expenditures by corporations and unions. Former Justice Anthony Kennedy, who wrote the majority opinion in Citizens United, wrote that “with the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters.”
Critics say those disclosures have not consistently manifested across public companies, depriving investors of information on how corporate funds are being spent. Foster, in remarks during the markup, said his bill “would try to restore a sensible balance to that equation” by requiring the quarterly and annual disclosures.
The Chamber, in its letter opposing the bill, cited “an ongoing effort by activists to silence the business community’s voice in political and public policy debates by using the federal securities laws to compel disclosure of activity, not for the purposes of investor protection, but instead to glean information to advance other interests through name-and-shame tactics.”
Companies are already required to disclose their political contributions, the chamber argued in its letter. And, it wrote, for other political activity and lobbying disclosures, investors can seek greater information through the shareholder proposal process in Rule 14a-8 of the Securities Exchange Act of 1934.
“Over the years, shareholder proposals requiring political and lobbying disclosures have consistently been rejected by shareholders,” the chamber wrote.
Axne’s Workforce Investment Disclosure Act would set out a new disclosure regime for human capital management.
The bill would write into law a set of new required disclosures that mirror those sought in a 2017 SEC petition by the Human Capital Management Coalition, a group of institutional investors with some $3 trillion in assets. The coalition, and others, are seeking to require that public companies give investors more data on how they manage their workforce, arguing that shareholders today lack comparable human capital data across companies.
Under the bill, the SEC would be required to make rules directing public companies to include, in their annual reports, data that includes workforce demographic information, such as the number of full-time, part-time, and contingent workers, and disaggregated compensation data for each group; workforce stability information such as voluntary and involuntary turnover rates; workforce composition and diversity policies; and policies and practices related to the engagement and psychological wellbeing of employees, among other items.
Axne, during the markup, said investors today “have extremely limited information about a company’s workforce, even though it is their greatest asset.” Today, under the SEC’s disclosure framework in Regulation S-K, public companies need only disclose their total number of employees.
The Chamber cited a parallel effort by the SEC to expand workforce disclosures in its opposition to Axne’s bill, which it argued would “preempt the SEC’s flexible, principles-based approach on human capital disclosures.”
“The Chamber is supportive of the SEC’s approach,” the group wrote. “Instead of building on this workable solution by the SEC, this bill would mandate disclosure.”
The commission included the human capital disclosure requirements in its August 2019 proposal in Release No. 33-10668, Modernization of Regulation S-K Items 101, 103, and 105.
(See Proposal Includes New Disclosure About How Companies Manage Their Employees in the August 12, 2019, edition of Accounting & Compliance Alert.)
Investor groups are asking the SEC to put in place prescriptive requirements under Reg S-K as opposed to its current principles-based approach that gives companies flexibility to determine which human capital data needs to be disclosed.
This article originally appeared in the March 2, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.
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