By Linda VanDeventer, JD, MBA, CCP
**This is a republication from ChicagoSHRM, ‘month’ 2021
This past year demonstrated to be a remarkable precedent setting year for organizations as well as for each employee personally.
Based on one’s industry, great success was experienced while others severely underperformed while others closed their doors. As organizations prepare for wrap up of year-end activities, we need to forge ahead and consider the unique year we just experienced.
Increased Transparency Directly Due To COVID19
As the new year begins, many who participate in authoring annual reports and proxy statements (for those publicly traded), typically Finance, Legal and HR, will benefit from recognizing the changing landscape of formal organization documentation and publications.
First, in June 2020, the Division of Corporation Finance Securities and Exchange Commission issued sweeping detailed guidance to consider when preparing year-end documents. Topic No. 9A released on June 23, 2020, outlined many implications of COVID19 and how organizations should be transparent by reporting significant detail around how companies managed through this crisis.
The purpose of the disclosure guidance is not rule or law but promotes honest and open communications to shareholders. The guidance also encourages organizations to publish updates as facts and circumstances change. The intent is to keep shareholders informed on how the company is being managed by its leaders, how its human resources are impacted, and how its financial condition is impacted. Excerpts of the guidance includes:
Human Capital Related Guidance
- “How and to what extent have you altered your operations, such as implementing health and safety policies for employees, contractors, and customers, to deal with these challenges, including challenges related to employees returning to the workplace?”
- “Have you materially reduced or increased your human capital resource expenditures? Are any of these measures temporary in nature, and if so, how long do you expect to maintain them?”
- “What factors will you consider in deciding to extend or curtail these measures?”
Financial Related Guidance
- “How are the changes impacting or reasonably likely to impact your financial condition and short- and long-term liquidity?”
- “Have you modified other contractual arrangements in response to COVID-19 in such a way that the revised terms may materially impact your financial condition, liquidity, and capital resources?”
- “Have COVID-19 related impacts affected your ability to access your traditional funding sources on the same or reasonably similar terms as were available to you in recent periods?”
Management Related Guidance
- “What are the material operational challenges that management and the Board of Directors are monitoring and evaluating?”
- “Are you at material risk of not meeting covenants in your credit and other agreements?”
- “Have you altered terms with your customers, such as extended payment terms or refund periods, and if so, how have those actions materially affected your financial condition or liquidity?”
The full article can be found at: http://www.sec.gov/corpfin/covid-19-disclosure-considerations
A Win for Diversity
Although we live in a divided country, most recently illustrated by the events on January 6, 2021 when our Capitol Building was attacked by our own US Citizens, a growing voice has been screaming for equal rights. Social norms have been shifting for decades and works remains to be done. As we witness slightly increased diversity in our government, we also experience slightly increasing diversity in our leadership of organizations. But more needs to be done.
One strong advocate of such change is State Street Global Advisors, a holder of over 10,000 organizations’ stocks. Although State Street advises publicly held companies, privately held organizations will benefit from adopting diversity focused action steps.
In June 2020, State Street issued a letter to the Board chairs of the companies in which they own shares. CEO Ron O’Hanley wrote, “Simply because most of us are innocent bystanders does not mean that we can just stand by.”
Further, State Street committed to take 10 immediate actions to strengthen its own racial equality. State Street’s action steps can be found here:
State Street not only vowed to change its own diversity practices, but the letter sent to Board chairs requests the formal disclosure of the following:
“To this end, we ask that US companies in our portfolio and, to the greatest extent possible, non-US companies, provide specific communications to shareholders in five key areas:
1. Strategy: Articulate what role diversity plays in the firm’s broader human capital management practices and long-term strategy.
2. Goals: Describe what diversity goals exist, how these goals contribute to the firm’s overall strategy, and how these goals are managed and progressing.
3. Metrics: Provide measures of the diversity of the firm’s global employee base and board. For example:
Workforce- Employee diversity by race, ethnicity, and gender, broken down by industry-relevant employment categories or levels of seniority, for all full-time employees. In the US, companies can use the disclosure framework set forth by the United States Equal Employment Opportunity Commission’s EEO-1 Survey. Non-US companies are encouraged to disclose this information in alignment with SASB’s guidance and nationally appropriate frameworks.
Board Level- Diversity characteristics, including racial and ethnic makeup, of the board of directors.
4. Board: Articulate goals and strategy related to racial and ethnic representation at the board level, including how the board reflects the diversity of the company’s workforce, community, customers, and other key stakeholders.
5. Board oversight: Describe how the board executes its oversight role in diversity and inclusion.”
The full article can be found at: https://www.ssga.com/library-content/pdfs/global/Addressing-Racism-and-Inequality_10-State-Street-Actions.pdf
In closing, there are many important issues increasing in popularity to consider when finalizing annual reports such as environmental, sustainability, and governance factors. However, in 2020, these areas stand out as towering issues we must come together and move forward together to ensure enduring change happens for the sake of our democracy.