On October 3, the Director of the Securities and Exchange Commission’s Division of Corporation Finance (Division), Keith F. Higgins, spoke at the George A. Leet Business Law Conference, discussing SEC disclosure requirements and offering thoughts on the future of disclosure.
Mr. Higgins noted the Division’s Disclosure Effectiveness agenda and its goal of recommending rule changes to the SEC that would (1) update and modernize disclosure requirements, (2) eliminate redundant disclosures and (3) continue to provide material information to investors.
In general, Mr. Higgins emphasized the importance of striking the right balance between providing investors with “the information they need to make informed investment and voting decisions” and “compliance costs for companies and the potential impact on efficiency, competition and capital formation.” In doing so, Mr. Higgins highlighted the following considerations:
- the diverse composition of today’s investors, which is increasingly more institutional;
- a diverse and changing body of reporting companies, both in terms of (i) size (noting that some have queried whether $75 million in public float is the appropriate threshold for a smaller reporting company and, as a result, the scaled disclosure system) and (ii) type of industry (in this regard Mr. Higgins noted that, at a minimum, industry guides needed to be modernized);
- in some cases, allowing companies more flexibility to provide disclosures they believe to be material to investors via a principles-based approach, rather than an explicitly required line-item approach; and
- changes in technology that could be utilized to make it easier for investors to access more streamlined disclosures (for example, through a “company file” versus a periodic filing approach, while keeping in mind the benefits associated with the standardized process that has developed around the periodic reporting system).
Mr. Higgins also noted that achievement of the right balance would require, in addition to rule changes by the SEC, the proactive involvement of companies.