SEC Chair Mary Jo White spoke about the future of securities disclosure reform in a speech yesterday before the National Association of Corporate Directors.
Ms. White noted that a common problem today is “information overload” – when investors are provided “too much” information – “a phenomenon in which ever-increasing amounts of disclosure make it difficult for an investor to wade through the volume of information she receives to ferret out the information that is most relevant.” The reasons for the increase are several: new rules issued by the Staff, legislative changes such as the Private Securities Litigation Reform Act, which led to a proliferation of risk factors, and the “say-on-pay” vote mandated by the Dodd-Frank Act, which led to 40+ pages of executive compensation disclosures, and a company’s decision (typically prompted by their counsel) to provide more information in an effort to reduce the risk of litigation.
As required by the JOBS Act, the SEC Staff is reviewing current disclosure requirements to determine how to modernize and simplify the requirements, and to reduce the costs and other burdens of the disclosure requirements for emerging growth companies. Chair White said that the SEC expects to issue this report “very soon.”
The areas of disclosure reform for future consideration noted by Chair White include:
- Use of a “core document” or “company profile” containing base information that would be updated as required with information about offering, financial statements and significant events.
- Elimination of repetitive disclosures in filings, such as “legal proceedings” for which the identical information can appear in a Form 10-K four or more times.
- Revision of the Industry Guides, which, except for oil and gas, have not been updated in decades.
- Consideration of whether the applicable disclosure timeframes should be shortened in light of the increased use and speed of technology, including social media and smart phones.
- Whether there are required disclosures that are not necessary for investors or that investors do not want, such as share prices, dilution disclosures and earnings to fixed charges ratios.
Hopefully, the SEC can quickly complete the remaining rules it is required to write under the Dodd-Frank Act and turns its attention to writing rules designed to streamline the disclosure process.