On April 13, the SEC authorized the issuance of a major concept release. Concept releases are trial balloons that the SEC publishes to elicit input on possible rulemaking, including whether rulemaking is needed and what form it should take if it happens. The April 13 concept release is entitled “Business and Financial Disclosure Required by Regulation S-K”. Given that Regulation S-K spells out many of the disclosure requirements applicable to all sorts of Exchange Act filings, it’s bound to be significant.
The concept release is a very large trial balloon indeed – it runs to nearly 350 pages – and I have yet to crack it open. However, I do intend to read it. And I urge you to do the same, as it’s likely to impact disclosure requirements for the next generation.
Some preliminary thoughts about the concept release, based upon press reports and the opening statements made by the Commissioners during the meeting at which the release was approved for publication:
- It does not address Item 402 of S-K – the regulation that governs disclosure of executive compensation, including the CD&A. In the past, SEC Staff members have said that 402 was not up for review because it’s been reviewed and revised so many times already. It’s too soon to know if that continues to be the Staff’s position or if it’s being saved for a separate release. In my view, it needs to be overhauled because it has had many more unintended consequences than anyone could have imagined.
- The Commissioners’ opening statements indicate their view that S-K is principles-based. I wouldn’t agree with that across the board, but one hopes it’s a good sign that any rule changes will fit that description.
- The opening statements of Chair White and Commissioner Stein focus on the possible need to reconsider what “materiality” means today, particularly in the context of disclosures on sustainability and other ESG matters. And Chair White’s statement suggests that the SEC may heed investors who want more of this type of disclosure. That may be fine, but “want” does not mean “need”, and one hopes that the Commission will carefully weigh whether particular disclosures should be mandated merely because they are on some investors’ shopping lists. (Not surprisingly, Commissioner Piwowar stresses the importance of focusing on financial materiality.)
Thus far, I have not heard or seen anything suggesting that the release focuses on the need for political contributions disclosure. However, that may well be on the SEC’s agenda sooner rather than later, as the confirmation hearings to fill the two vacancies on the Commission have been bogged down due to the nominees’ failure to commit to make such disclosure a priority.
To paraphrase a line from an old movie, fasten your seatbelt; it’s going to be a bumpy flight.