Workforce Data Insight Pitch

Moreover, while firms are at least required to disclose their spending on research and development, human capital costs are not broken out from other expenses.24 In sum, because accounting rules aggregate labor costs with a slew of additional administrative expenses, investors cannot identify how much a firm invests in its workforce from its financials. Investors, however, need the ability to tease out labor costs from other operating expenses, particularly for lossmaking firms. This will provide more visibility into whether lossmaking firms are truly lossmaking or whether these firms show a loss under GAAP because they are investing in their future growth. Prior IAC Action on Human Capital Disclosures Given the clear value of human capital, it is no surprise that the IAC has addressed this topic previously. In March 2019, the IAC recommended that the SEC pursue rulemaking to improve human capital disclosures for investors. 25 In the recommendation, the IAC observed: In contrast to the financial markets' view of human capital as a source of value, the Securities and Exchange Commission's historical approach to the workforce has been to view human capital as a cost. The Commission's disclosure frameworks - both quantitative and qualitative - have not kept pace with the shift towards human capital management (HCM) as a primary source of value. Valuation of firms with few hard assets based on public SEC-mandated disclosure alone is increasingly difficult. Currently available information is not consistent, verified, or comparable across companies. Differences in HCM make existing disclosure requirements, such as the 10-K requirement to disclose the number of employees, difficult for investors to interpret or use. Yet HCM metrics such as those outlined below are a routine part of financial due diligence, such as in M&A transactions, including for basic valuation models. While the SEC did act on some of the recommendations put forth by the IAC, as noted above, the current disclosure regime has not met its full potential to provide investors-the ultimate users of issuer disclosures-the information they need for investment, engagement or voting purposes. The principles-based approach the Commission elected to take in 2020, while a step in the right direction, gives companies too much latitude and not enough direction regarding what information would be decision-useful to investors. Investors still need fundamental, baseline metrics reported by each company to anchor industry- and company-specific information to seize opportunities and mitigate risks. In sum, by strengthening the set of available information, and ensuring that the information is reliable, verifiable, consistent, comparable, and timely, the SEC would allow 24 See also Letter from Sen. Mark Warner to Hon. Jay Clayton, Chairman, Sec. & Exch. Comm'n 3 (July 19, 2018). 25 Recommendation of the investor Advisory Committee, Human Capital Management Disclosure (March 28, 2019), https://www.sec.gov/spotlight/investor-advisory-committee-2012/human-capital-disclosure-recommendation.pdf INVESTOR ADVISORY COMMITTEE 7

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