On October 15, Mary Jo White, Chairwoman of the Securities and Exchange Commission, delivered a speech to the National Association of Corporate Directors regarding the current state of public company disclosure. Chairwoman White emphasized that the core purpose of public company disclosure is to provide investors with the information they need to make informed investment and voting decisions, and raised the question “whether investors need or are optimally served by the detailed and lengthy disclosures about all of the topics that companies currently provide in the reports they are required to prepare and file with us.” She also discussed the mandate under the Jumpstart Our Business Startups Act for the Division of Corporation Finance to review the current disclosure requirements of Regulation S-K and consider how to modernize, simplify and reduce the burden of such requirements, noting that the Division of Corporation Finance is finalizing its report in response to this mandate. Chairwoman White stated that this report would be “only the first step in any potential review effort,” and went on to discuss certain areas that she would like the SEC to explore in evaluating the current disclosure regime.
In the view of Chairwoman White, some of the current requirements may not result in information being provided to investors in the most efficient manner, due in part to changes in technology that have made information such as stock prices more readily available outside an issuer’s SEC filings. She also highlighted areas of disclosure that have become increasingly lengthy and complex due to reasons other than additional regulation from the SEC. For instance, according to Chairwoman White, “risk factor” disclosure has expanded due to issuers’ fears of liability for material omissions, and executive compensation disclosure has expanded due to issuers’ desires to do a better job of explaining the rationale for complicated compensation packages in light of the “say on pay” requirements imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act. In addition, Chairwoman White mentioned that some disclosures appear multiple times in the same filing, often with substantially the same language, and suggested that the SEC consider whether it might need to “harmonize” the disclosure requirements to avoid this repetition. Although she did admit that additional disclosures in these areas can benefit investors, she also cautioned that “we should be careful not to have too much of a good thing.” Finally, Chairwoman White discussed potential changes to the disclosure scheme in general, such as more principles-based (rather than specific line-item) disclosure, disclosure requirements tailored to the industry in which an issuer operates and/or the creation of a “core document” or “company profile” filing with the SEC that would contain information that changes infrequently.
To view the full text of Chairwoman White’s speech, click here.