SEC Directed to Undertake Disclosure Reform in Transportation Bill Signed by President

December 18, 2015

The recently adopted transportation bill requires the SEC to accelerate the pace of its project to reform the corporate disclosure regime, including executive compensation disclosures, in an effort to reduce reporting burdens and eliminate "duplicative, overlapping, outdated, or unnecessary" information.  The provision addressing disclosure reform was approved shortly after Keith Higgins, the SEC's Director of the Division of Corporation Finance, announced his intention to embark on a comprehensive review of executive compensation disclosures this year.  The mandate in the transportation bill, however, now provides specific deadlines and accountabilities.  Specifically, the transportation law:

  • Requires the SEC by June 2, 2016 to issue regulations which "scale or eliminate" requirements of Regulation S-K, which includes executive compensation disclosures in the proxy statement, to reduce reporting burdens and streamline the disclosure reporting requirements by getting rid of "duplicative, overlapping, outdated, or unnecessary" information.

  • Within a year of enactment, requires the SEC to publish a study on Regulation S-K, and within a year after publication to issue rules based on the study to:

    • Determine the best method to modernize and simplify the reporting requirements to reduce costs and burdens on companies;

    • Emphasize a more company focused approach to disclosure which would provide investors with material information while avoiding boilerplate language; and

    • Evaluate methods of information delivery and presentation and explore methods for discouraging repetition and the disclosure of immaterial information.
The SEC will have until June 2, 2016 to issue regulations allowing a summary page in the 10-K as long as they include cross-references to more fulsome disclosure elsewhere in the Form 10-K.  Disclosure reform has been a priority of SEC Chair Mary Jo White, but it has received limited consideration due to Congressionally-mandated rules under Dodd-Frank and other laws.  While it is not known which disclosures and requirements the SEC would seek to scale back or eliminate, a comprehensive disclosure reform effort has the potential to improve the quality of corporate disclosures while also making it easier for companies to comply.  The Association's Center On Executive Compensation will be engaging the SEC throughout the process.