Comments sought on disclosures about executives and board of directors

The SEC on August 25, 2016, issued a preliminary rulemaking document to seek comments on disclosures about executives and board of directors as part of the broader Disclosure Effectiveness initiative.

Release No. 33-10198, Request for Comment on Subpart 400 of Regulation S-K Disclosure Requirements Relating to Management, Certain Security Holders and Corporate Governance Matters, deals with disclosure requirements in Subpart 400 of Regulation S-K, such as executive pay and certain corporate governance matters.

Comments are due 60 days after publication in the Federal Register, which normally occurs several days after a rule is posted on the SEC’s website.

As part of a comprehensive review of Reg S-K, the set of rules that cover information outside the financial statements that companies must provide in their annual and quarterly reports, the SEC in Release No. 33-10198 said it wants to know how companies disclose and present information about management and directors, and whether technology can be leveraged to provide the information more efficiently.

Item 401 requires companies to identify and describe directors, executive officers, promoters, and control persons.

Item 402 requires disclosure of all compensation given to executive officers and directors.

Item 403 requires a description of the security ownership of certain beneficial owners and management.

Item 404 requires a description of certain transactions with related persons, promoters, and certain control persons.

Item 405 requires a company to identify individuals who failed to file certain forms and reports on a timely basis in the most recent fiscal year.

Item 406 requires disclosures about whether a company has adopted a code of ethics for executive officers.

Item 407 requires corporate governance disclosure about director independence, board meetings, various board committees, and any process for shareholder communications.

The SEC said it wants to figure out the best ways to modernize and simplify the requirements that reduce costs and burdens on companies while still providing all material information to investors. The commission also wants comments about a company-by-company approach that will provide relevant information without boilerplate language.

While related to Release No. 33-10064, Business and Financial Disclosure Required by Regulation S-K, a preliminary rulemaking document the SEC issued in April to seek comments about Reg S-K, Release No. 33-10198 is separate.

Release No. 33-10064 covered business and financial disclosures, and the SEC in April noted that the scope of the document does not include certain disclosure requirements regarding management, certain security holders, and some corporate governance matters found in Subpart 400.

The requirements in the concept release issued in April have been reviewed less frequently than executive compensation and governance matters contained in Subpart 400 of Reg-SK over the years, the SEC said.

In the past several years, companies have complained that disclosures have gotten longer and more costly while failing to provide much value to investors. SEC Chair Mary Jo White made the commission’s broader disclosure project a priority to make disclosures more effective by cutting dated and redundant requirements while adding information that investors might find useful.

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