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Image by Ryan F from Pixabay

For many years, I have urged companies to consider going beyond the bare minimum disclosures required by SEC rules – in appropriate circumstances, of course.  In my experience, providing more disclosure than what is specified in the rules can generate positive feedback or even praise from investors and other stakeholders.  And, in fact, many companies do go beyond the rules.  For example:

  • Does your proxy statement include photos of your board members?  The rules don’t require that, but it can certainly help to create the impression – hopefully valid – that your directors are actual human beings and can also demonstrate your board’s diversity.
  • How about including a proxy statement summary that points out your company’s strong governance practices or demonstrates that it really does pay for performance?  Again, the rules don’t require a summary. However, given the incredibly limited amount of time that most investors spend reading your proxy statement, a summary can prove very helpful – and can generate support for your nominees and the board’s position on shareholder proposals and other voting matters.
  • Do you explain the roles of your board and its committees in overseeing areas such as sustainability or diversity?  Again, not required, but in my experience those disclosures can convey that your board is on top of its responsibilities.

However, at the risk of stating the obvious, any voluntary disclosures have to meet the same standards as required disclosures.  In other words, they must be accurate and complete and must not omit information that would make the disclosure incorrect or misleading. This was most recently brought home in a case involving Keurig Dr Pepper Inc.

The facts of the case, as recited in the SEC Order in the case, include that:

  • The company had conducted consumer research in 2016 indicating that, for some consumers, environmental concerns were a significant factor in deciding whether to purchase a Keurig brewing system.
  • Following a change in the composition of its “pods,” the company conducted testing to determine whether the newly formulated pods could, in fact, be recycled.  Two major recycling companies participating in the test “conveyed significant negative feedback to Keurig regarding the commercial feasibility of…recycling of pods at that time.”
  • Despite that feedback, the company’s 10-Ks for 2019 and 2020 stated that “we have conducted extensive testing with municipal recycling facilities to validate that [pods] can be effectively recycled.”  However, the negative feedback was not also disclosed.
  • The 10-K for 2021 did not contain the disclosures cited above.

In finding the above statements in violation of Section 13(a) of the Exchange Act and Rule 13a-1 thereunder, the SEC imposed a fine of $1,500,000, and the company entered into a cease and desist order.

The statements in Keurig’s 10-Ks were not required; the SEC Order suggests that they were included in order to appeal to the company’s environmentally conscious customers and, possibly investors.  However, the company seems to have overlooked that the rules applicable to required disclosure apply equally to voluntary disclosure.