The SEC adopted amendments to revise the description of business, legal proceedings and risk factor disclosures that registrants are required to make under the Securities Act. The amendments will go into effect 30 days after publication in the Federal Register.
As previously covered, the amendments are intended to (i) improve disclosures for investors, (ii) simplify compliance for registrants, (iii) decrease repetition in disclosure documents and (iv) not require disclosure of information that is not material.
Commissioner Statements
SEC Chair Jay Clayton expressed support for the amendments, and pointed in particular to the requirement for issuers to discuss human capital resources. Mr. Clayton explained that it is his personal view that "many high quality companies tend to invest in and actively manage the development of human capital."
SEC Commissioner Allison Herren Lee criticized the amendments for relying too heavily on principles-based disclosures, and for not addressing the "critical" subjects of diversity and climate risk disclosures.
SEC Commissioner Elad Roisman praised the amendments for shifting from "dated" prescriptive disclosure requirements to a more principles-based approach, which he stated will enable investors to focus on material information that is more representative of the particular circumstances of a company.
SEC Commissioner Hester Peirce supported the shift to a more principles-based approach to disclosures, but criticized the inclusion of a requirement that a company disclose its number of employees. Further, Ms. Peirce challenged the notion that a summary of a company's risk factor disclosures (where the full disclosure exceeds fifteen pages) would motivate an issuer to shorten disclosure, since such disclosure is viewed as a protective measure against litigation.
Commentary
Commissioner Lee has been a persistent critic of the SEC's declining to mandate disclosure, in a standardized form, as to climate change risks.
One way for her to strengthen her position would be to propose very specific suggestions as to what such standardized disclosure would look like for different types of issuers (e.g., for energy, technology, manufacturing, entertainment). There are undoubtedly groups and individuals who would assist in proposing such a standardized model.
By way of example, former CFTC Chair Giancarlo published a number of personal white papers intended to advance a discussion on cross-border swap regulations and Commissioner Peirce made a detailed proposal as to how utility tokens might be treated under the securities laws. If Commissioner Lee would put forward a realistic proposal that is workable for issuers of all types, she would advance a discussion on whether her positions are workable, and would produce information that is meaningful and can be applied to issuers of all types at a cost that is reasonable.
Primary Sources
- SEC Press Release: SEC Adopts Rule Amendments to Modernize Disclosures of Business, Legal Proceedings, and Risk Factors under Regulation S-K
- SEC Final Rule: Modernization of Regulation S-K Items 101, 103 and 105
- SEC Statement, Allison Herren Lee: Regulation S-K and ESG Disclosures - an Unsustainable Silence
- SEC Statement, Elad L. Roisman: Opening Remarks at the Open Commission Meeting to Adopt Amendments to Items 101, 103 and 105 of Regulation S-K
- SEC Statement, Hester M. Peirce: Statement at Open Meeting on Modernization of Regulation S-K 101, 103 and 105
- SEC Statement, Jay Clayton: Modernizing the Framework for Business, Legal Proceedings and Risk Factor Disclosures
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