As mandated by the JOBS Act, the SEC is in the midst of a major reassessment of its disclosure rules and practices. For example, in December 2013, the Division of Corporation Finance released its “Report on Review of Disclosure Requirements in Regulation S-K.” The report identifies certain areas of disclosure that the staff believes should be considered for further review and modernization.

More recently, Keith Higgins, Director of Corp Fin, spoke to the ABA Business Law Section on the SEC’s initiatives in this area. He described the report as a “springboard” for updating Regulations S-K and S-X in hopes of reducing company disclosure costs and providing more effective disclosure to investors. The staff also intends to consider methods of disclosure, including the latest technology, structured data, hyperlinks and the like.

If this initiative moves with the speed of similarly comprehensive past projects, none of us may live to see its completion. To be fair, however, something like this is a huge undertaking and needs to be done correctly, with proper consideration of both company and investor perspectives. So, a reasonable amount of patience is appropriate.

In the meantime, Mr. Higgins suggests that companies can, and should, take the following steps to provide better disclosure under the existing rules:

• Reduce Repetition. He cites as an example the common practice of companies including verbatim disclosure from their significant accounting policies financial statement footnote in their MD&A discussions of critical accounting estimates. He correctly points out that “if there were ever a place in a report that cried out for a cross reference—and there are likely plenty of them—this is near the top of the list.” More generally, he provides the following advice: “Before you repeat anything in a filing, please step back and ask yourself—do I need to say it again?”
• Provide More Focused Disclosure. Here, Mr. Higgins’ worst-offender example is risk factors, which he says “many companies have come to view…as an insurance policy.” He notes that companies must tailor risk factors to their own circumstances, rather than simply follow what others have done: “[T]he first question should be ‘does this issue apply to the company?’ And when the answer is no, it should be the last question as well.”
• Eliminate Outdated Information. He notes that disclosure must evolve over time. To emphasize this point, he quotes a survey stating that, once they include disclosure in a public filing in response to an SEC comment, 74% of companies say they rarely, if ever, remove it. “A response to a staff comment is not carved in stone and enshrined for time immemorial in each filing going forward—unless, of course, it remains material.”

Each of these suggestions is broadly applicable to all public disclosures. In fact, companies that proactively strive to provide “best practice” disclosure probably already adhere to these principles. Others may fall short. For anyone reluctant to revise their disclosure because “that’s the way we’ve always done it” or “it’s just safer/easier to leave it in,” perhaps these words from the Director of Corporation Finance will provide cover for making overdue improvements.