The Securities and Exchange Commission’s Investor Advisory Committee will hold a meeting on March 7, 2024, during which it will discuss the SEC’s equity market structure proposals. The Committee also will consider a recommendation on digital engagement practices (see here), which the Committee had previously discussed. Finally, the Committee will host a panel regarding the use of materiality as a disclosure standard. This year, as the meeting notice highlights, is the 25th anniversary of Staff Accounting Bulletin 99 on materiality (SAB 99). Panelists, who include Professor Joe Grundfest and George Georgiev, and Lynn Turner, among others, will discuss and consider whether there are ways for the SEC to improve disclosure decisions. Setting aside the SAB 99 anniversary, it is an interesting time for such a discussion to take place given the proliferation of new disclosure requirements. From time to time, in his remarks, Commissioner Uyeda has commented on the materiality standard—for example, in a March 2023 speech at Columbia, the Commissioner noted: “The Commission’s current regulatory agenda includes climate change, human capital, cybersecurity, and share repurchases, among other topics. While some of these issues may be important to particular investors, the Supreme Court has held that materiality turns on an objective standard of the reasonable investor. However, for the rulemakings where the Commission has issued proposals, the required disclosure is often one-size-fits-all and prescriptive. The disclosure requirements do not appear to be rooted in whether a reasonable investor would consider the information important in his or her decision to invest in a company’s stock.” Going further back to 2022, speaking at a Georgetown Law hosted industry conference, Commissioner Uyeda cited then-SEC Commissioner Roberta Karmel addressing these issues way back in 1978:
As greater numbers of Americans become owners of our large public corporations, whether individually or through institutional investors, and as corporations become subject to increasing government regulation, the dialogue between shareholders and their corporations becomes part of a larger political process. Nevertheless, and despite the legitimate concerns of ethical investors, I believe we should exercise caution in applying a non-economic standard of materiality to disclosure requirements… Because some investors may want certain information in order to make an investment or voting decision does not mean that mandatory disclosure of such information would be necessary or appropriate in the public interest or for the protection of investors.
Commissioner Uyeda cautioned that, “If we move away from a materiality that is focused on financial returns, we risk a regime that is subject to the whims of the administration in power – regardless of its political affiliation. And such a regime will likely increase the costs and complexity of disclosure, alongside increased litigation.” It will be interesting to hear what the panel has to say.
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