SEC Rules for Workplace Data Would Be Good for Investors

By Meredith Sumpter and Paul Dickinson
July 30, 2021

This op-ed was originally published in Bloomberg Opinion on July 30, 2021. View the original article.

The U.S. has been underinvesting in workers for decades, so it’s good news that the Securities and Exchange Commission is considering new rules requiring companies to disclose diversity, pay levels and staff turnover. Investors are increasingly demanding such information as they take a broader view of what determines corporate success.

That’s an important step toward the accountability we need from executives to ensure workers are included in the pandemic economic recovery. To really understand what companies call their human capital, the SEC and other watchdogs need to ask for a range of details that affect the wellbeing of employees and their productivity, from rewards to training.

There’s a parallel with climate reporting, also under the microscope at the SEC, where the focus has expanded in the past few years from a company’s direct emissions to include greenhouse-gas output across its supply chain. Leaving out people who are less closely tethered to an enterprise — freelancers and gig workers, for example — gives at best a partial picture, just as disclosing only direct emissions would for a corporation’s carbon footprint.

A 2019 report by the Economist Intelligence Unit found that contingent workers, often hired for projects and for short periods, made up more than a fifth of the workforce at over 50% of large U.S. and U.K. companies. That’s too large a number to ignore.

Through the Workforce Disclosure Initiative, launched in 2016, we know that this issue matters to the world’s largest investors, and that they want more data. See, for example, the case of Deliveroo’s initial public offering, when leading fund managers including Aberdeen Standard Investments and Aviva Investors declined to participate because of questions about workers’ rights.

As with most companies that have launched today’s gig economy, Deliveroo riders and drivers are technically self-employed and therefore not entitled to holiday or sick pay. The debut was a disaster.

As with climate disclosures, transparency will drive company action. Consider the climate survey from CDP, a nonprofit that helps companies disclose and share green information. When companies respond for the first time, just 38% report having an emissions target in place. By the third year, this increases to 69% — a noteworthy jump, even given that most joining in will already be motivated to improve.

If this translated to workforce practices, increased corporate detail would affect the lives of millions of Americans. SEC proposals to mandate disclosure of diversity data and contract types — how many permanent and temporary staff a company has — would allow investors and civil society to see into organizations, spot the best practices and demand more from the rest. It will help raise the bar on equal opportunities and secure employment. A 2019 study from the National Bureau of Economic Research found that the introduction of mandatory reporting on gender pay differences in Denmark reduced the gap by 13% — a good start.

There is broad-based support in the U.S. for this transparency. In 2019, the Coalition for Inclusive Capitalism established a bipartisan commission, comprising a diverse range of public and business figures, including CEOs, civic leaders, worker representatives, economists and scholars, sought to identify the elements for building a more inclusive economy. Among its recommendations, the commission called for the development of uniform and mandatory disclosure standards encompassing companies’ full range of stakeholders, in particular workers.
Companies are beginning to recognize the benefits of disclosure, and some are proactively collecting and disclosing workforce information: Last year, 141 of the world’s largest companies responded to the Workforce Disclosure Initiative. Some are already reporting a positive impact on diversity, inclusiveness and working conditions, even when it comes to their contractors and suppliers.

But not nearly enough companies are doing so, leaving investors guessing and American companies’ workforce practices woefully behind. This despite growing evidence that higher investment in wages and workers makes for better outcomes for employers, and that more diverse companies are more profitable, too.

The S in ESG — environmental, social and governance — is only just beginning to register for investors, sitting somewhere close to where the E was at the very beginning. But it took 20 years for environmental disclosure to mature. With America’s economic recovery and the livelihoods of millions of workers at stake, regulators should act with urgency.


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