Document Type
Article
Publication Date
2025
Publication Information
54 Sw. L. Rev. 24 (2025)
Abstract
Human capital contributes directly to the top and bottom line of corporate financial performance. However, theory predicts, and empirical studies suggest, that firms underinvest in human capital because of a classic public goods problem: since employees can always leave to work for another employer, firms cannot expect to bear all the fruits of investments they make in human capital. As human capital becomes more important in the modern service and technology economy, the ills of this public good problem are growing and the deficiencies of underinvestment becoming more apparent. This Article studies the potential role of human capital management disclosures. Sophisticated investors ask for human capital disclosures in private offerings, negotiated mergers and acquisitions, and in periodic public company disclosures. But the empirical analysis in this Article shows that voluntary disclosures by public companies in periodic reports filed with the Securities and Exchange Commission (SEC) lack critical human capital management information and are fragmented, inconsistent, and incomparable. The Article explains why new prescriptive, mandatory human capital management disclosures for public companies can improve investment decisions, voting decisions in director elections, and investor stewardship activities. The human capital management case study shows why the SEC's statutory authority must be interpreted as broad enough to compel disclosures that contain an inextricable nexus with social issues, so long as the disclosures produce at least some business or financial information. It is unlikely that any standard that gives judges broader ability to second-guess the SEC on the boundaries of the information package mandated by the federal securities laws would be consistent with the statutory text granting the SEC's broad authority to compel disclosures that are "necessary or appropriate" for the protection of investors or in the public interest. The Article weighs arguments in favor of approval of a mandatory prescriptive human capital management disclosure rule that is more consistent with the needs of investors and the objectives of the securities laws.
Recommended Citation
Patrick M. Corrigan,
Can the SEC Mandate Disclosures that Contain Both Financial and Social Information? The Case of the Human Capital Management Disclosures,
54 Sw. L. Rev. 24 (2025).
Available at:
https://scholarship.law.nd.edu/law_faculty_scholarship/1739