In an effort to update corporate disclosure filings, the SEC on Wednesday voted 3-2 to adopt amendments aimed at simplifying the information publicly traded companies must provide.
Specifically, the amendments to the final rule would "modernize" the description of business, legal proceedings and risk-factor disclosures that companies are required to make pursuant to Regulation S-K.
The move reflects the commission's emphasis on "principles-based" registrant-specific approach to disclosure. While some of the disclosure requirements are prescriptive, they are rooted in materiality and designed so the public can more easily understand each registrant's business, financial condition and prospects, the SEC said in a fact sheet.
Moreover, the amendments are intended to improve the readability of disclosure documents, as well as discourage repetition and reduce the disclosure of information that is not material, the SEC said.
The SEC initially proposed the disclosure changes in August 2019.
During an SEC open meeting Wednesday, Chairman Jay Clayton highlighted disclosure requirements concerning human capital. Under the final rule, registrants will have to provide a description of their human capital resources to the extent such disclosures are material to understanding the registrant's business.
"From a modernization standpoint, today, human capital accounts for and drives long-term business value in many companies much more so than it did 30 years ago," Mr. Clayton said. "Today's rules reflect that important and multifaceted shift in our domestic and global economy."
The commission's two Democrats, Allison Herren Lee and Caroline Crenshaw, each voted against the amendments. Ms. Lee specifically took issue with the final rule because it is "silent on two critical subjects: diversity and climate risk disclosures."
Ms. Lee said she would have supported the rule if it had included "even minimal expansion on the topic of human capital to include simple, commonly kept metrics such as part-time vs. full-time workers, workforce expenses, turnover, and diversity. But we have declined to take even these modest steps."
Anna Pinedo, a partner and co-leader of the global capital markets practice at Mayer Brown, said in an interview that companies' human capital management has garnered more attention this year in light of the COVID-19 pandemic. "During the COVID period it became really obvious that for many companies, it was very important for investors to understand what they were doing in terms of workplace safety, retention and other personnel-type matters," she said.
Ms. Pinedo expects there to be a variety in terms of what companies disclose regarding human capital in the next few years. "Just like for climate change … and other ESG-related topics, disclosure across companies vary pretty widely," she said. "So I think it will be a learning process for lawyers and for companies."
The amendments will become effective 30 days after publication in the Federal Register.
