Anthony Onesto argues that if the SEC required companies to disclose more human capital metrics (beyond simple headcount), it would transform how businesses, investors, and HR operate. He frames human capital as the primary source of corporate value today, criticizes the current narrow SEC disclosure (headcount only), notes the 2021 proposed but unfinalized SEC expansion to human capital disclosures, and highlights surprising resistance from HR professionals. Onesto suggests standardized human capital metrics would link HR practices to business outcomes, attract investor funds, and professionalize HR reporting, while acknowledging implementation burden and the need to standardize metrics over time.
Chapters
What if the SEC required companies to disclose more human capital metrics? What would change? My opinion? Everything. Everyone, it's Anthony Ernesto and this is my burn the box drop for this week. I am talking about human capital metrics in public disclosures. So let's all agree, I mean, we've read People Economics by Laura Queen. We know there is an effort to really push the people side of the business from an expense to an asset. Let's all agree that at this point in the life cycle of companies that human capital is the company's most valuable asset. In fact, if you look at the S&P 500 and company valuation over time, you will see the move from intangible assets or tangible assets to intangible assets over time. And now intangible assets represent about 90 plus of a company's value. Now argue the other 10% people argue is IP and branding. Those things are created by humans, by the way. So for me, I think almost 100% of company value these days is represented by its people. The conundrum here is that when you file for an IPO or you're a public company, there's one metric from a human capital perspective that you must report. Guess what that metric is. Yes, you've seen my stuff before. You know, they say headcount is not a human capital metric, but in this case it is. And in fact, having a discussion with someone very recently, I was convinced that actually the ins and flows and outflows of human capital do tell a very interesting story from a company perspective. If you have a large increase in your engineering head, you're focusing on R and D. If you have a high amount of headcount increase in your sales marketing, you're focusing on sales and marketing. So it gives a good intention of where the company's strategy is in terms of its human capital. But that's really the only metric that's required by the sec. Really made me start thinking that if we were required, both public and private companies to record more human capital metrics, what would that do for the profession? And I've been talking a lot with heads of HR and CPOs, and there's a burnout that's happening in human resources. And I think overall the profession is frustrated that they've been pushing, pushing, pushing, kind of got to a good place. And then we saw the economic headwinds of earlier this year and you know, the whole profession, recruiting and hr, all the investments that were made were drawn back. So I think there's definitely a bit of whiplash here. What if the SEC would require more human capital reporting, what would happen? Well, actually they tried in 2021 proposed expanding human capital metrics to include turnover, diversity data and other object of management disclosures. And that did not. They were not finalized. They still need to be finalized. And there's actually substantial resistance from various groups. And some of the group which was surprising to me in my research is the human capital or the human resource profession. We are pushing back and I think it's a. It's somewhat of a conundrum because I think this unlocks everything for us. I think if you can get more and more human capital metrics standardized and reported on, what will happen is you'll see a correlation of that of those metrics to return on investment. And so then all of a sudden investors are interested. What are you doing from a human capital perspective? In fact, I would imagine that there are going to be funds created based on all these human capital metrics. If those of us in HR know the thesis is that doing and having great human capital practices equates to great business impact. And a lot of investors will put funds together based solely on the human capital metrics which then will perpetuate a need for what are you doing from an investor perspective, from a board perspective, to a CEO, to a HRO or a CPO level, really leveling the game of human resources. And I think it unlocks so much so that to see the resistance on the profession side is just very strange to me. Now I do realize and I looked at contrary viewpoints on this particular stands and it does create a lot of additional work for folks. We now have to report these things. But I have to imagine the same thing happened within the finance and accounting space when the SEC requires more additional finance disclosures. You created these roles FP and A and other things. So imagine that the profession itself will now have to evolve. But I do believe that if we start reporting on these things and we show that connection to business results unfunding will unlock, resources will unlock, we'll finally have that connection we've been always asking for of human capital to the business impact. So what's one way forward is really mandating or pushing the SEC to mandate the public companies disclose more than just their headcount. Conversations are broadening. There's definitely a lot of discussion around this. And I think it's a balance balance of really figuring out what are the metrics, what are the standardizations and then putting those things in place and then iterating over time. And I know iterating government requirements don't usually sit in the same sentence, but I do believe my founding principle here is all the frustration, all the burnout that's happening in hr. It is a macro level issue that if we can get more reporting done at an SEC public filing perspective, but even on a private company level around human capital metrics, you'll start to see a change in the industry. That's my quick drop. We'll see you next time.
