At the outset of the pandemic, employees were the top priority of boards, second only to continued liquidity. That focus intensified during the social unrest following the death of George Floyd. Now, the SEC’s new disclosure rules on human capital management (HCM) could further reinforce the focus on workers—at least temporarily.

Boards will soon face a choice, however, when it comes to their role in HCM. They can ensure that the company satisfies the new SEC reporting requirements but return to the traditional approach of providing general oversight and being deeply engaged on workforce issues on a periodic basis—as they did in response to the #MeToo movement or company-specific events such as mergers and scandals that highlighted weaknesses in corporate culture. Or they can view recent events as a catalyst to make the workforce a sustained strategic focus of the board.

Boards are struggling with how deeply to be involved in HCM, and there are risks in overstepping into a managerial role. But if companies achieve the appropriate level of board engagement and disclosure on HCM (focusing on strategy and key drivers, rather than day-to-day activity), they will not only drive long-term value, but also provide a template for how boards can tackle other ESG areas.

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