The SEC staff recently conducted a preliminary review of the disclosure requirements under Regulation S-K, which was the initial step in a plan to conduct a comprehensive review of the regulation to address reporting requirements and presentation and delivery issues for public companies. The SEC has launched a website dedicated to gathering information from companies, investors and other market participants on what information is important to investors, how disclosure enhancements can be made, how disclosure can be simplified and how technology can play a role in these items.
In an April 2014 speech to the American Bar Association Business Law Section, Keith M. Higgins, Director of the SEC’s Division of Corporate Finance, expanded on this SEC effort to eliminate duplication and reduce disclosure burdens for public companies, while continuing to provide material information to investors. In addition, Mr. Higgins recommended companies not to wait for any comprehensive updates to Regulation S-K, but made several suggestions that public companies and their counsel can begin now to make disclosure more effective, including the following:
- Reduce repetition – Mr. Higgins encouraged companies, for example, to reconsider whether including a verbatim disclosure from the footnotes in MD&A is necessary.
- Focus disclosure – Mr. Higgins cautioned companies that more is not always better, but that a company should consider whether something is truly applicable to the company, and not include just because it is a “hot button” issue for the staff or all of the company’s peers appear to include it.
- Eliminate outdated information – Lastly, Mr. Higgins encouraged companies to allow their disclosure to evolve over time and eliminate disclosure once no longer material, even if it was originally included as a response to a SEC staff comment.
Companies are encouraged to carefully consider the disclosures included in their periodic reports, and may want to ask themselves some of the following questions as they draft: Are you including certain disclosure because it is truly material to a description of your company or required by the regulations? Is there disclosure you could eliminate that is only included because it has always been included, but is no longer relevant to the total mix information that investors need?Taking a fresh look at the disclosure may be the best first step in beginning to improve the disclosure process.