VEA Comment to the SEC on Human Capital Disclosures Rulemaking Petition

VEA was proud to support the rulemaking petition at the SEC for better, clearer disclosure of human capital information.  This is the comment we have filed.

September 27, 2017


Honorable Jay Clayton


U.S. Securities and Exchange Commission

110 F Street. N.E.

Washington D.C. 20549


Re: Human Capital Management Disclosures Rulemaking Petition


Dear Chairman Clayton,


We write in support of better disclosure of human capital information on behalf of ValueEdge Advisors, a consulting firm specializing in corporate governance, working primarily with institutional investors. This comment, however, reflects only our own views, based on decades of working in the fields of corporate governance and capital formation.


As you know, GAAP data came out of an era when a company’s primary worth was based on real property, equipment, and its inventory of tangible products. We now live on a time when companies’ primary assets and liabilities are all human capital, the abilities, knowledge, and relationships of its employees. You can hardly find an issuer’s annual report that does not claim the company’s primary assets are its people. And yet you would not know that from looking at balance sheets, which are skimpy when it comes to information we find essential for evaluating investment risk. Just as important, it is information corporate executives themselves must have in order to develop strategy and evaluate operations.


We strongly endorse the position of the Human Capital Management Coalition (HCM) as outlined in their comment letter of July 6, 2017,  that better disclosure of an issuer’s record on human capital is achievable at very low cost, and of enormous value to investors, analysts, and the issuers themselves. The kind of information we would like to see includes employee turnover, employee training, and opportunities for advancement.


It is important to emphasize that this is not in any way a political agenda. It reflects concerns raised by respected institutional voices like BlackRock’s Larry Fink and the Sustainability Accounting Standards Board (SASB), which produces reports like “Human Capital in the Age of Fintech.” As noted in the HCM letter, “SASB has identified one or more human capital issues as ‘material’ for accounting purposes for at least some industries in each of its 10 sectors. It has characterized human capital as a ‘cross-cutting’ issue.” (footnotes omitted)


Such disclosure will not inhibit capital formation. Quite the contrary, it will make capital allocation more efficient, and any such claims should be closely examined for proof. And it will not impose any additional costs. The information needed for disclosure is already available and relied on by executives and managers, or, if it isn’t, they are overlooking critical data and that in and of itself is of vital interest to investors. If part of what investors need to do is evaluate risk, it is far more significant to know how much a company is investing in employee development and whether employees are satisfied enough to stay in their jobs, keeping crucial institutional knowledge in-house, than to know what the depreciation schedule is for some forklifts. There is hard data, readily available, about employee capabilities, training, and treatment. And there are unprecedented changes ahead from the development of AI and the increasing seamlessness of global outsourcing. Both can be enormous accelerants for corporate operations, but both pose enormous risks as well, in oversight and in the scope of problems, like cybersecurity, that are difficult to predict.


We will not reiterate the extensive points made by HCM; we incorporate them by reference, and provide this comment only to underscore our strong belief that this is an essential area for SEC action. We request that hearings be scheduled and would be glad to provide any additional information that may be of help.


Sincerely yours,





Richard A. Bennett                                          Nell Minow

President and CEO                                          Vice Chair



Do Performance Share Units Work?

Aubrey E. Bout and Blaine Martin of Pay Governance evaluate the effectiveness of a decade of performance stock units on shareholder value.

PSU plan payouts in aggregate were aligned with company total shareholder return (TSR): plans paying out above target showed significantly higher TSR than plans paying out below target during the same period.

There is no one-size-fits-all approach to pay-for-performance: PSU plans using both operating metrics and relative TSR metrics show strong alignment with TSR over the contemporaneous period.

We found that PSU payouts for plans implemented in and after the first year of say-on-pay (SOP) had higher payouts than plans before SOP, but this trend is likely influenced by broad stock market trends independent of SOP.

PSU plans based entirely on operating metrics had median plan payouts at or below plans that included Relative TSR metrics in 7 of 10 years reviewed. This finding suggests that Compensation Committees closely scrutinize goal setting when using operating metrics in PSU plans, which rebuts arguments that companies commonly set easy operating financial goals to get above-target payouts.

Saving face: How exit in response to negative press and star analyst downgrades reflects reputation maintenance by directors

A new study in the Academy of Management Journal by Joseph S Harrison, Steven Boivie, Nathan Sharp and Richard Gentry documents the link between outside pressure and board member departures.

Using a sample of directors of S&P 1500 firms between 2003 and 2014, we argue and find that negative media coverage and downgrades by star equity analysts are positively related to director exit, even after controlling for firm performance, overall media visibility, and negative events such as lawsuits and financial restatements. We also find that director status intensifies the effect of negative media coverage on exit, serving as the board chair attenuates the effect of star analyst downgrades on exit, and director tenure intensifies the effects of both negative media coverage and star downgrades on exit. In post-hoc testing, we provide further evidence of director reputation maintenance by demonstrating the counterintuitive finding that negative attention from the media and star analysts also increases directors’ likelihood of joining the boards of other S&P 1500 firms.

Source: Saving face: How exit in response to negative press and star analyst downgrades reflects reputation maintenance by directors

Monsanto banned from European parliament | Environment | The Guardian

Monsanto lobbyists have been banned from entering the European parliament after the multinational refused to attend a parliamentary hearing into allegations of regulatory interference.It is the first time MEPs have used new rules to withdraw parliamentary access for firms that ignore a summons to attend parliamentary inquiries or hearings.

Monsanto officials will now be unable to meet MEPs, attend committee meetings or use digital resources on parliament premises in Brussels or Strasbourg.While a formal process still needs to be worked through, a spokesman for the parliament’s president Antonio Tajani said that the leaders of all major parliamentary blocks had backed the ban in a vote this morning.

“One has to assume it is effective immediately,” he said.MEPs had been incensed at a Monsanto decision to shun a hearing organised by the environment and agriculture committees, with academics, regulators and campaigners, on 11 October.The meeting is expected to hear allegations that Monsanto unduly influenced regulatory studies into the safety of glyphosate, a key ingredient in its best-selling RoundUp weedkiller.

Source: Monsanto banned from European parliament | Environment | The Guardian

UN’s $61 Billion Pension Fund Starts Search for New Management – Bloomberg

United Nations Secretary-General Antonio Guterres wants to overhaul management of the global body’s $61 billion pension fund after three years of underperforming returns and contentious delays in paying retirees.The UN Joint Staff Pension Fund is seeking candidates with “more than 20 years of proven progressively responsible experience” to replace Carolyn Boykin, the former chief investment officer of the Maryland State Retirement and Pension System, who took the UN post three years ago, according to an internal job posting seen by Bloomberg News.

Source: UN’s $61 Billion Pension Fund Starts Search for New Management – Bloomberg

Activism and Board Diversity

Activism at public companies can reduce board diversity, or it can increase it, depending on the circumstances. In recent years, activist hedge funds have installed dissident nominees who collectively have trailed the S&P 1500 index significantly in terms of gender and racial diversity. In contrast, institutional shareholders and asset managers are promoting board diversity to an unprecedented extent, with concerted public efforts already producing results. Several institutional investor initiatives, announced earlier this year, and the New York Comptroller’s Boardroom Accountability Project 2.0, announced earlier this month, may be game-changing initiatives on the path to greater board diversity.

Source: Activism and Board Diversity

Why companies and CEOs treat their workers like garbage.

A new book,  The End of Loyalty: The Rise and Fall of Good Jobs in America, argues that the primary focus on shareholder value has enabled decisions that are bad for workers and consumers.

This culture, [Rick] Wartzman argues, has “explicitly elevated shareholders above employees.” Looking at issues like the rising disdain for unions, the emergence of Ronald Reagan, and, quite simply, less corporate focus on the common good, Wartzman makes the case that the increasing focus on top salaries and shareholder returns has warped American life.

Source: Why companies and CEOs treat their workers like garbage.

The Equifax Hack: More Questions Than Answers About the Board

So what happened? At a time when board composition and disclosure are presented as the board’s best safeguards to a range of corporate crises, what lessons can be gleaned from the Equifax debacle—despite the board’s perceived preparedness in these areas?  <P><P>In each annual proxy, boards disclose their governance practices—from director succession planning to risk management—which serves to reassure investors (large and small) that their assets are in safe hands. Yet, the Equifax breach presents us with a scary prospect: How many companies have failed to do what they say?

Source: The Equifax Hack: More Questions Than Answers About the Board

The real impact of impact investing | GreenBiz

Consider that the 2017 Impact Investor Survey by the Global Impact Investing Network calculated the amount of money deployed into impact investing as roughly $110 billion, a tiny fraction of the $70 trillion value of public companies. Unless impact investing becomes more inclusive and more accessible to everyday American investors — U.S. mutual funds are in fact the world’s largest component of corporate ownership — we will continue to miss out on 99 percent of the impact that investing can have by affecting existing companies and markets.

Source: The real impact of impact investing | GreenBiz

KB Home to Cut C.E.O.’s Bonus After His Rant Against Kathy Griffin – The New York Times

The New York Times also notes other recent examples of executives whose comments were deemed to hurt the company’s brand or reputation.

Engaging in problematic activity has forced several chief executives from their jobs.

■ Brian J. Dunn of Best Buy had a relationship with an employee (2012)

■ Matt Harrigan of PacketSled ranted on social media on election night about killing President-elect Trump (2016)

■ Scott Thompson of Yahoo was found to have padded his résumé (2012)

■ Kenneth Melani of Highmark got into a fight with the husband of his then-girlfriend, who was also an employee (2012)

■ Brendan Eich of Mozilla donated $1,000 in support of a ballot measure to ban same-sex marriage, causing outrage in Silicon Valley (2014)

■ Klaus Kleinfeld of Arconic wrote to a hedge fund manager without the board’s knowledge (2017).