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Internet Archive Book Images

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:

  • Permitting issuers to satisfy S-K disclosure requirements by incorporating information by reference to the financial statements (S-K 10). To coin a phrase, this could be “yuge” and could be the single biggest enhancement of disclosure effectiveness in many a moon.
  • Clarifying that the description of property (S-K 102) is only required where physical property is material to the issuer. Thus, the usual exciting description of a tech company’s headquarters may be going by the wayside.
  • Permitting hyperlinks to the notes to the financial statements instead of having to include a table of contractual obligations in the MD&A (S-K 303). Note that some additional disclosures might be required to explain changes and the issuer’s ability to pay.
  • Clarifying that biographical information for non-director executive officers need not appear in the proxy statement if it is included in the 10-K (S-K 401). I’ve been saying that for years, and it’s nice to be vindicated.
  • Eliminating the requirement (S-K 405) to discuss Section 16 delinquencies where there are none. (Do you still think that miracles never happen?)
  • Clarifying that Emerging Growth Companies do not have to file a Compensation Committee Report (S-K 407). This is a long-overdue correction of a technical error.

These are only a few of the recommendations in the report. Some are more technical, while others are more substantive, and it’s not clear that all of them would be welcome by the issuer community.  It’s also worth noting the report is missing some recommendations that many of us have wanted for years, including my least favorite requirement (in S-K 407) to discuss compensation committee interlocks — under a separate caption, no less, even where there are none (and, for the record, I’ve never seen any disclosures of an interlock).  However, this is a sound report that is worthy of attention that it will probably not get.  So my post-turkey suggestion is that you curl up with some left-over pecan pie and give it a shot.