SIEPR's Honigsberg urges lawmakers to reform corporate transparency

Stanford’s Colleen Honigsberg recently told federal lawmakers that reforms are needed to increase transparency into how public companies invest in their workforces.

“Despite the value generated by employees, U.S. accounting principles provide virtually no information on the knowledge, skills, competencies, and attributes of firms’ workforces,” Honigsberg, a SIEPR Faculty Fellow and professor at Stanford Law School, testified before the U.S. House Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets.

“I believe that increased transparency around intangible assets such as human capital will better allow shareholders to assess public companies’ investments in their people—just as our transparency around investment in tangible assets has long facilitated analysis of public companies’ investments in their physical operations,” she told the subcommittee on Dec. 8.

During her testimony, Honigsberg proposed three reforms based on her research that would allow investors to better analyze public companies’ investments in their workforce.

Read and watch Honigsberg's testimony here.

First, managers should be required to disclose what portion of workforce costs should be considered an investment in the firm’s future growth. Second, workforce costs should be expensed for accounting purposes but disclosed, allowing investors to capitalize workforce costs in their own valuation models as appropriate. Third, the income statement should be disaggregated to give investors more insight into operational costs.

“Given the importance of workers in today’s economy, it is long past time for modernization of these rules,” she said.