The SEC has proposed significant changes to the disclosure requirements for public companies, including how a registrant describes its business, its legal proceedings and risk factors. When describing the business (Item 101), the proposal would move to a more principles-based disclosure regime focused on material information a registrant should disclose rather than a list of topics. The new disclosures should also include a discussion of how the management of human resources affects the business. The proposal also would require a narrative about the effect of government regulations on a company’s capital expenditures, earnings and competitive position. There will be a 60-day comment period following publication.
It’s always good to focus disclosure on the material issues. However, every SEC administration trumpets a goal of “improving disclosure.” This effort may be like putting a coat of paint on a structurally defective house to prepare it for sale. The issue for public companies is not how the lawyers should interpret Item 101, but the onerous compliance and regulatory obligations that may discourage private and non-U.S. companies from accessing the public markets.