JUST Capital Makes the Case for Smart Corporate Disclosure in Front of Congress

(U.S. House Committee on Financial Services/YouTube)

As the ESG debate heats up among lawmakers, JUST Capital is showing how our data and research prove that “when companies manage their stakeholder relationships well, shareholders also benefit.” That’s how our Managing Director and Head of Investor Strategies, Cambria Allen-Ratzlaff, put it in her opening statement on Thursday in front of the U.S. House Committee on Financial Services Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets.

The topic of the hearing was “E, S, G, and W: Examining Private Sector Disclosure of Workforce Management, Investment, and Diversity Data,” with the question of potential ESG and human capital disclosure standards via the Securities and Exchange Commission (SEC) the focus. Rep. Brad Sherman, D-Calif., led Democrats on the committee calling for a robust set of standards, and Rep. Bill Huizenga, R-Mich., led Republicans arguing that such standards would be SEC overreach. 

Representing JUST Capital, Allen-Ratzlaff highlighted the data that shows that it remains quite difficult to capture the human capital metrics that Americans across all demographics, as well as major investors, are calling for, and in her capacity as Co-Chair of the Human Capital Metrics Coalition, she recommended four disclosures that would benefit shareholders. Using JUST’s research, Allen-Ratzlaff avoided the argument over what’s “woke” politicking by regulation rather than votes, and instead pointed to current challenges in gathering the data the public and investors alike are asking for.

Below, you’ll find a recording of the full hearing along with text of Allen-Ratzlaff’s opening statement. At the House subcommittee’s website, you can read and download JUST’s full written testimony, filled with intricate details supporting our position.

Testimony of Cambria Allen-Ratzlaff 

Managing Director and Head of Investor Strategies, JUST Capital

Co-Chair, Human Capital Management Coalition

Chairman Sherman, Ranking Member Huizenga, and Members of the Subcommittee:

Good afternoon. My name is Cambria Allen-Ratzlaff, and I am pleased to appear before you today representing JUST Capital where I am Managing Director and Head of Investor Strategies. I also Co-Chair the Human Capital Management Coalition, a group of 37 large investors representing over $8 trillion in assets.

I have brief prepared remarks and respectfully request that the full text of my oral and written statements be entered into the public record.

JUST Capital is an independent, nonprofit research organization dedicated to measuring how America’s largest public companies create competitive value for their shareholders while serving their workers, customers, communities, and the environment. Our view is that when companies manage their stakeholder relationships well, shareholders also benefit.

Every year, we survey the American public to identify the business issues that matter most to them. We then use publicly available data to quantify performance of the Russell 1000 against those priorities. The vast majority of this data is hand-collected by our research team, taking 10,000 to 15,000 hours on average. Once we have reviewed the data and assessed company performance, we build our annual Rankings. We also leverage the data we collect to understand how performance translates into investment returns.

As researchers, our work goes where the voice of the American public takes us.

Since 2015, we’ve engaged more than 160,000 Americans representative of the U.S. adult population. And we have found that Americans are remarkably united in what they want companies to prioritize: workers, wages, and jobs. This holds across every single demographic group. 

Paying a fair and living wage is the most important priority across all groups, followed by creating jobs at home. Americans are also primarily concerned about health and safety, and workforce mobility and training. So much so that collectively, worker issues make up 44% of our assessment model. 

Our thesis is that companies that are better at managing their stakeholder relationships tend to generate more returns for their investors. We have consistently observed this to be true:

  • If an investor purchased an equally weighted index of the top 100 companies in our Rankings – which we refer to as the JUST 100 – at its March 2019 inception, the index would have generated 6.7% in excess returns versus the Russell 1000. 
  • If you were to invest in an index of companies scoring in the top 10 percent of our Worker stakeholder group from the beginning of this year through December 1, you would have generated 9.29% in excess returns. 

As U.S. public companies are born from, and an integral part of, American society, it is perhaps unsurprising that what is good for workers is good for investors. Our reporting system, however, has been slow to adapt.

Consider this: The only line-item data U.S. public companies are required to disclose on their workforce is headcount. This reporting standard was set in 1973, when over 80% of the S&P 500’s market cap was property, plant, and equipment. Fast forward 50 years to today, and 90% of the S&P 500 is based on intangible assets. It’s human capital – the collective knowledge, skills, and experiences of the workforce – powering economic growth. 

But as our financial reporting standards have lagged, this also means that up to 90% of company value may not be reflected in companies’ disclosed financials. And investors have taken note. 

Speaking on behalf of the Human Capital Management Coalition, the Coalition has urged financial and accounting standard-setters to improve access to workforce data through a balanced approach, where principles-based disclosures are anchored by four foundational, decision-useful disclosures that apply to all companies. They are: (1) the number of full time, part-time and contingent or contracted labor directly involved in firm operations; (2) labor costs; (3) turnover; and (4) workforce diversity data sufficient to understand the company’s efforts to access and develop new sources of talent, as well as how effective these efforts are. 

Without this information, investors are flying blind, unable to understand how well a company manages its workforce, and how it impacts a company’s overall business, risks and prospects, to most efficiently direct their financial capital to its highest-value use. 

Today, even attempting to get this information is excessively time-consuming. When JUST Capital assessed workforce disclosure at the 100 largest U.S. employers, it took a team of two skilled data scientists over 130 hours to collect data on a discreet number of human capital metrics – or find the data completely unavailable. 

If a sophisticated research organization like JUST Capital, or large, global institutions with billions of dollars in capital are unable to access decision-useful, comparable, consistent, and reliable workforce data, small retail investors are at even more of a disadvantage. And, according to JUST Capital’s polling, 85% of Americans across political affiliations agree that companies should disclose more about their business practices and impact on society.

Companies meeting the needs and expectations of the American public have proven them to be value-relevant through their performance. Simply put, companies that are best at harnessing the awesome power of their workforces are also best-positioned to generate long-term value for shareholders. 

Thank you, and I look forward to your questions.

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