By Anne Sherry, J.D.
In remarks to open a recent meeting of the Small Business Capital Formation Advisory Committee, SEC Commissioner Mark Uyeda expressed concerns about the impacts of reporting and disclosure requirements for public companies. Uyeda emphasized the importance of materiality in driving disclosure and said that the Commission can use its rulemaking authority to stem the trend of companies remaining or going private.
Uyeda observed that the number of publicly traded companies continues to decline, narrowing the options for retail investors. While the commissioner allowed that regulatory compliance costs may not be the sole reason for the decrease, he said that the SEC can try to improve the incentives for companies to go public or remain public.
Instead, though, the SEC’s current regulatory agenda contemplates even more reporting and disclosure obligations, Uyeda said. For example, comments on the proposal regarding climate-related disclosures have suggested that the costs of compliance may be significant, without significantly improving the financial information on which investors base their decisions.
Uyeda expressed similar concerns about other potential disclosure frameworks, like human capital disclosures. The historical driver behind disclosure is financial materiality, and recent rules already require registrants to make human capital disclosures to the extent they would be material to understanding the business.
Finally, the commissioner called on the SEC to consider the cumulative impact of its entire regulatory agenda in keeping with the principle that robust economic analysis is a benefit to the rulemaking process. He added that many SEC rules assume, for purposes of gauging compliance costs, that outside legal counsel costs $400 an hour, an estimate that has been in place since 2006.