[caption id="attachment_2869" align="alignright" width="300"] Internet Archive Book Images[/caption]
As noted in a recent post, the future of SEC regulation – and perhaps even of the SEC itself – is uncertain in the wake of Donald Trump’s election. However, the SEC Staff, a smart, decent and hardworking group, continues to stick to its knitting despite the turmoil.
The most recent example of the Staff’s diligence is a “Report on Modernization and Simplification of Regulation S-K – As Required by Section 72003 of the Fixing America’s Surface Transportation Act”. The Report was issued on Thanksgiving Eve, and it’s no turkey. Don’t be put off by the incredibly long title or by the fact that SEC regulations have nothing to do with Surface Transportation. The Report provides a good summary of some actions impacting Reg S-K that have been taken to date, and the Staff’s recommendations for actions down the road (assuming there is a road).
Here are some of the highlights of things that may be on the come: Continue Reading
If you’ve been reading our posts (and probably even if you haven’t), you should know by now that the SEC has launched a “disclosure effectiveness” initiative and has already taken actions to make some disclosures more “effective”. One such action was the publication of a 341-page “concept” release asking hundreds of questions about whether and how to address a wide range of disclosure issues. More recently, the SEC has proposed rule changes that would eliminate some particularly pesky disclosure burdens.
Two news items from the front lines:
First, you may recall my mentioning that the Council of Institutional Investors was considering adopting a new policy that would limit newly public companies' ability to include "shareholder-unfriendly" provisions in their organizational documents (see "Caveat Issuer", posted on February 13). I just came back from Washington, DC, where I attended the Council's Spring Meeting, and the new policy appears to have been adopted as proposed. While the text of the new policy was not made available at the meeting, and has yet to be posted on the Council's website, it appears to provide that while some of these provisions can be in place when a company goes public, others -- such as plurality voting for directors in uncontested elections -- should be absent from the get-go.
By the way, my hotel room had a lovely view of the Jefferson Memorial, and the cherry blossoms were about to pop.
In other news, the SEC has announced, by way of a Sunshine Act Notice, that at an open meeting to be held on March 30 it “will consider whether to issue a concept release seeking comment on modernizing certain business and financial disclosure requirements in Regulation S-K”. Looks like the disclosure effectiveness program may be moving forward. Watch this space for details.
It’s not for nothing that I’m a securities lawyer. I sincerely believe in the need for and efficacy of full and fair disclosure, both professionally and personally. That’s one of the many reasons why I have been advocating disclosure reform – or, as we now call it, “effective disclosure” – to assure that important matters are disclosed, and that unimportant matters need not be.
So it’s not surprising that I’m upset about something that happened recently. I attended a program at which a representative of a major institutional investor said that his firm just doesn’t have time to read the proxy statements of the companies in which the firm has invested. I’ve heard this song before in various guises – for example, one major institution told me a few years ago that the most they’d ever spend reading a 100-page proxy statement was 15-20 minutes – but for some reason the statement I heard recently really bothered me.
Why do securities lawyers spend most of their waking hours, and many of the hours when they should be sleeping, trying to provide investors with the information they need to make important decisions? (And, for the cynics out there, I’ve never heard a securities lawyer say anything like “How can we hide this?”) Why do companies spend untold amounts of money paying their lawyers to do that? More important, why is it acceptable for major investors to say that they don’t read their investees’ disclosures? Does it ever occur to them that they may be in violation of their legal and ethical obligations to their clients by blowing off the obligation to read those disclosures and voting on significant matters without reading those disclosures?
Which brings me back to “effective disclosure.” I’m passionate about the topic, and I’ve put my time (which is, after all, money) where my mouth is. But I’d be crazy not to think about whether it’s really worth the time and effort it will take to overhaul our approach to disclosure if, at the end of the proverbial day, few if any people will benefit from it or even care about it.
Years ago I commented on an SEC rule proposal by saying, among other things, that it would result in more disclosure that no one would read. I was told by the then-Director of the SEC Division of Corporation Finance that rulemaking isn’t based on whether anyone reads the disclosures in question. At the time, I thought he was probably right, but now I’m not so sure.