Tomorrow, the Securities and Exchange Commission (SEC) will reveal any changes to Regulation S-K. A proposal by the Commission was introduced in 2019.
According to the meeting notice, the Commission will consider:
“whether to adopt amendments to modernize the description of business, legal proceedings, and risk factor disclosures that registrants are required to make pursuant to Regulation S-K. These disclosure items, which have not undergone significant revisions in over 30 years, would be updated to account for developments since the rules’ adoption or last revision, to improve disclosure for investors, and to simplify compliance for registrants. Specifically, the amendments are intended to improve the readability of disclosure documents, as well as discourage repetition and the disclosure of information that is not material.”
Disclosure is required by reporting firms but the degree of disclosure mandated has increased dramatically in recent years while the benefit to investors may not justify the added scrutiny. Of course, there is a cost to increased disclosure – part of this cost manifests itself in fewer public companies.
The US Chamber of Commerce commented on the review stating:
“As we have repeatedly noted, the public company business model has become far less popular than in the past, which is reflected in the declining number of public companies overall—in the past twenty years, the number of US public companies has been cut in half. Fewer public companies means fewer investment opportunities for Main Street investors. The Chamber once again commends the Commission for its ongoing commitment to review existing regulations that affect this serious issue.”
Anna Pinedo, a partner at the law firm of Mayer Brown, shared the following perspective with Crowdfund Insider. Pinedo said this is part of the SEC’s ongoing disclosure effectiveness initiative that includes:
- Simplifying the disclosure requirements for legal proceedings, which will eliminate repetitiveness
- Requiring that the risk factors section include heading and subheadings, which will make these more accessible to investors
- Requiring a summary of the risks if the whole risk factor section is longer than 15 pages
Pinedo said that allowing a company to present a business discussion for the timeframe it considers material (not 5 years) and to provide an update to business (after the issuer’s first filing), should make filings easier to navigate and understand. Good for both sides of the equation.
“What’s unclear, and what we will be watching closely is: whether and what requirements the SEC adopts as fare as “human capital disclosures,” said Pinedo. “Especially during the pandemic, it became clear that investors care about disclosures regarding a company’s workforce, safety, etc.”
We will know more tomorrow.