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HCM, ESG, sustainability, human capital management, human resource management, SEC disclosure regime, corporate reporting, materiality, principles-based disclosure, Reg. S-K, board fiduciary duties, Caremark/oversight duties, SASB, GRI, stakeholder capitalism, enlightened capitalism, future of work


Corporations cannot exist without workers, yet workers are not part of the formal or informal governance structures established by U.S. corporate law. Commentators and policymakers have bemoaned this state of affairs for decades, to little avail. Since the mid-2010s, however, a concept related to workers, human capital management (HCM), has become an increasingly prominent part of U.S. corporate governance. HCM is premised on the notion that workers can be viewed as “assets” and ought to be managed just as carefully as firms manage physical and capital assets. In practice, HCM is an expansive concept that has been used to refer to workforce training, compensation and retention issues, gender pay equity, diversity and inclusion, health and safety, matters related to corporate culture, employees’ ability to participate in stock purchase programs, and various other matters.

The speed with which HCM has emerged and the depth and breadth of its reach have been surprising. While broadly fitting within the rubric of environmental, social, and governance (ESG) factors, HCM has quickly surpassed more traditional ESG topics in terms of prominence and uptake. Boards of directors have started to focus on HCM as part of their monitoring and oversight responsibilities, including by amending committee charters to cover HCM matters, identifying HCM as a desirable qualification for director nominees, and incorporating HCM metrics into executive compensation plans. Investors are now actively engaging with management and boards on questions pertaining to HCM. In August 2020, the Securities and Exchange Commission (SEC) adopted a new rule requiring HCM disclosure by public companies. A variety of private standard-setting organizations have already developed detailed HCM reporting standards, which firms have started to adopt. Taken together, these developments represent a powerful and heretofore unprecedented push to incorporate worker-related concerns in corporate governance—a phenomenon I describe as an “HCM movement.” This Article presents a comprehensive analysis of the origins, impact, and normative desirability of the HCM movement with reference to the broader transformation of U.S. corporate governance and the often-ignored historical and comparative context.

Subject to certain qualifications, the Article views HCM as a broadly positive and much-overdue corporate governance development: HCM disclosure contributes to more accurate firm valuation by shining a spotlight on a key driver of success in the modern knowledge-based economy; HCM oversight at the board level ensures that firms focus appropriately on the management of what has come to be referred to as a “mission-critical asset.” To realize HCM’s full promise, however, participants in the HCM movement should seek to disambiguate the HCM concept by breaking it down into its appropriate constitutive elements, and, to the extent possible, focusing the relevant discussions on those specific elements. In addition, boards should resist isomorphic approaches, particularly ones developed by organizations such as large asset managers that are lacking in regulatory legitimacy, accountability, and HCM expertise. The SEC can and should serve as a nexus for coordination among the various participants in the HCM movement. As an initial step, the SEC should revisit the HCM disclosure rulemaking process and reject the unstructured, “principles-based” approach reflected in the 2020 HCM disclosure rule, which is based on an impoverished understanding of the important concept of materiality. In its final part, the Article considers HCM’s limits as a solution to problems beyond the core concerns of corporate law and suggests that the rapid rise of the corporate governance HCM movement has in fact highlighted the need for a governmental human capital agenda aimed at the active development and protection of human capital, not just its management.

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Tul. L. Rev.