Workforce Data Insight Pitch

Second, the IAC recommends that the Commission consider narrative disclosure, in the Management Discussion & Analysis, of how the firm's labor practices, compensation incentives, and staffing fit within the broader firm strategy. Such a discussion would address what portion of labor costs management views as an investment and why, including how labor is allocated across areas designed to promote firm growth (e.g., R&D) and those necessary to maintain current operations rather than increase sales revenue (e.g., compliance). Our recommendation here is consistent with the recommendation put forward in a June 2022 rulemaking petition submitted by former SEC commissioners and senior officials as well as professors of accounting and securities law.⁹ 8 Part I. Background on Human Capital Disclosures The discussion below begins with context for our recommendation and concludes with a discussion on the reasoning behind each specific item requested. Investor Interest in Human Capital Disclosures A growing body of work provides evidence that companies with effective human capital management perform better than those that manage their human capital poorly. 10 For example, investments in human capital are associated with numerous measures of profitability such as higher risk-adjusted returns, return on assets, and return on invested capital. ¹¹ Human capital investments are further associated with increased workforce productivity and higher customer satisfaction. ¹ 11 12 A example, in Japan, where ensuring the full participation of the workforce across sex is a national priority, companies will be required to disclose metrics related to gender equity & inclusion starting in 2024. 8 This narrative disclosure would allow investors better insight as to what portion of labor costs should be capitalized in their own financial models thus allowing investors to treat investment in labor akin to investment in capital expenditures. We anticipate that this narrative disclosure would have a discussion on how emerging technologies will affect firm strategy with respect to labor. ⁹ The Working Group on Human Capital Accounting Disclosure, Petition for Rulemaking (June 7, 2022), https://www.sec.gov/files/rules/petitions/2022/petn4-787.pdf 10 The Human Capital Management Coalition, Rulemaking Petition to the Sec. & Exch. Comm'n (July 6, 2017), https://www.sec.gov/files/rules/petitions/2017/petn4-711.pdf 11 Alex Edmans, Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices, 101 J. FIN. ECON. 621 (2011), http://faculty.london.edu/aedmans/Rowe.pdf; Aaron Bernstein and Larry Beeferman, THE MATERIALITY OF HUMAN CAPITAL TO CORPORATE FINANCIAL PERFORMANCE, President and Fellows of Harvard College (April 2015), https://lwp.law.harvard.edu/files/lwp/files/final human capital materiality april 23_2015.pdf; Laurie Bassi and Dan McCurrer, Human Capital Management Predicts Stock Prices (June 2010), https://mcbassi.com/wp/wp- content/uploads/2018/07/HCMPredictsStockPrices.pdf; Letter from Dr. Anthony Hesketh, Lancaster University Management School to Anne Sheehan, Chairman, Investor Advisory Committee, Sec. & Exch. Comm'n (March 21, 2019) https://www.sec.gov/comments/265-28/26528-5180428-183533.pdf 12 Laurie J. Bassi, Jens Ludwig, Daniel P. McCurrer, and March Van Buren, Profiting from Learning: Firm-Level Effects of Training Investments and Market Implications, 24(3) SINGAPORE MANAGEMENT REV. 61 (2002), https://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.533.7777&rep=rep1&type=pdf; Aon Hweitt, 2015 INVESTOR ADVISORY COMMITTEE 3

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