Investors Want More Human Capital Oversight: Time for directors to oversee 'the most important asset'.

• Author: Jones, Blair
• Position: COMPENSATION MATTER

Directors are questioning whether they should be exercising more oversight of human resources management, and that's leading to changes in the boardroom.

At Caterpillar Inc., the board now has a compensation and human resources committee. At Principal Financial Group, it's the human resources committee. At JP Morgan Chase, it's the compensation and management development committee. At Mastercard, it's the human resources and compensation committee.

The change is largely being prompted by investors' calling for more information on human capital risks.

So, how and how much should directors get involved in monitoring today's largest of intangible assets, human capital?

Inside boardrooms, directors have a range of views on the subject, from insisting they leave HR issues entirely up to management to fully embracing oversight as a fitting board role. Whatever your sentiment, a variety of forces are pressing for more board action. One force is competition. If the edge in business today comes through heads, not hands, the management of that resource becomes a mission-critical capability the board can't ignore.

Although intangible assets made up just over 30% of total company assets in 1985, today they make up more than 80%, according to recent studies. The care and feeding of those assets is no longer seen by many investors as a subject outside board scrutiny. The Securities and Exchange Commission's Investor Advisory Committee, for example, recently voted to urge the SEC to consider imposing human capital management disclosure requirements.

As part of an exploration of disclosure practices, SEC Chairman Jay Clayton said, "Investors would be better served by understanding the lens through which each company looks at its human capital. In this regard, I ask: What questions do boards ask their management teams about human capital and what questions do investors --those who are making investment decisions--ask about human capital?" (See related article on page 16.)

Investors have launched a quest for more information. State Street, for example, is asking directors how company culture underpins performance. Pension funds are asking for basic data about company workforces. Last year, New York State comptroller Thomas DiNapoli extracted agreements from companies including CVS, Microsoft, TJX, Macy's and Salesforce to disclose more information about their workforces' pay.

Forty-eight pension funds, from the states of New York, Ohio, Connecticut...