A week ago, the Securities and Exchange Commission, as required by the Fixing America’s Surface Transportation (FAST) Act, released a proposal to simplify and modernize Regulation S-K, which governs most public company disclosure. None of the proposals individually is that huge, but as a group they could noticeably ease the compliance burden. It includes things like allowing companies to avoid filing schedules and attachments to exhibits if they are not material.
For several years at the annual SEC small business conference where practitioners make recommendations, we have made one simple but potentially game changing suggestion. Apply a principles-based approach to disclosure and allow smaller public companies to exclude anything that is not material to a reasonable investor. The SEC already allows this in private offerings under Regulation D to unaccredited investors. In that case, they say that these less sophisticated folks can be given everything that would be in a full registration statement, minus whatever is not material. So far the staff (and Congress) has not seen fit to consider making this change.
Public companies spend more time and money than is necessary complying with rigid disclosure rules that are designed as a one-size-fits-all in a world of many different types of companies. How many investors, for example, really read and understand the complex dilution table in a public offering? Hopefully the SEC can think a little bigger in terms of simplification than we are seeing thus far.
