The Geography of Human Capital Management

Abstract

In recent years, environmental, social, and governance (ESG) investing has become embedded in a variety of legal institutions, including state law, stock exchange rules, and SEC regulations. Some of these rules are targeted at influencing the corporation’s operations or disclosure in the area of human capital. This article provides a granular look at one of them: the geographic aspects of the firm revealed in response to the SEC’s human capital management (HCM) disclosure rule, which took effect in November 2020 and which the SEC is planning to expand. Rather than looking at HCM purely as a function of ESG, this article explores spatial dimensions of the firm newly subject to a duty of disclosure.

In the first full reporting season following this rule (2021), many issuers disclosed geographic attributes of their workforce. Using hand-collected data from the annual reports of fifty software firms—the twenty-five largest by book value and another twenty-five randomly selected—this article illuminates spatial HCM below the C-suite and board levels, including geographic pay disparities and new forms of employee diffusion, such as remote work. Software firms were chosen because of the comparatively high degree of control they enjoy over the geography of their inputs, especially human capital.

Building on this analysis, the article argues that a variety of legal institutions that regulate markets should be refined to better advance ESG objectives where HCM is concerned. First, the article urges richer disclosure by issuers on their spatial human capital strategy. Second, it encourages intermediaries like proxy advisors, mutual funds, and pension funds to incorporate geographic attributes into their engagement—for example, by urging issuers based in areas with highly diverse populations to further diversify their workforce. And third, given the outsized role of institutional investors in the market for corporate influence and the growing scale of ESG assets, it proposes that the SEC’s new disclosure requirement be extended to all large asset managers, regardless of whether the entities are publicly or privately held (the current dividing line for regulation).

Keywords: human capital management, ESG, corporate governance, securities regulation, 10-K, HCM, technology, geography, spatial, telework, remote work, WFH, institutional investors, mutual funds, voting policy, disclosure, DEI

JEL Classification: K22, J24, J61, D24, D5, R12, R30, R32