SEC Updates Disclosure Requirements for Public Companies

The SEC adopted amendments to modernize the description of business, legal proceedings and risk factor disclosures that registrants are required to make under Regulation S-K in filings such as Form 10-K.  Lawyers from Sidley describe the SEC’s release and the implications for filers in a client alert. To summarize, the amendments:

  • give a company more flexibility to tailor the description of its business to its particular circumstances;
  • require a company to describe its human capital resources, including any human capital measures or objectives the company focuses on in managing its business, to the extent material to an understanding of the company’s business taken as a whole;
  • eliminate or reduce disclosure about matters that are not material to an understanding of a company’s business or legal proceedings; and
  • encourage risk factor disclosure that is streamlined, well-organized and limited to material risks.

The SEC said its disclosure requirements have not undergone significant revisions in over 30 years, and the amendments reflect the many changes in the capital markets and the domestic and global economy in recent decades. The SEC said the rules are designed for information to be presented on a basis consistent with the lens that management and the board of directors use to manage and assess a company’s performance. Commissioners Allison Herren Lee and Caroline Crenshaw dissented, with Lee criticizing the amendments for their silence on “two critical subjects: diversity and climate risk disclosures.” Lee explained that the SEC received thousands of comments seeking disclosure on workforce development, diversity, and climate risk, including letters explaining why principles-based disclosure requirements, without at least some specifics, would not produce the disclosures investors need. Commissioner Hester Peirce, on the other hand, praised the amendments, noting that they represent another step in the right direction by making the rules more principles-based and rooted in materiality.