Riding the SEC’s deregulatory tsunami

Beginning in May, the SEC issued a flurry of proposed reforms that could drastically change both the type of information organizations are required to report and the cadence in which they’re required to report it.

As a refresher—and nobody would blame you for needing it—here’s a recap of some major SEC proposals: The commission proposed an option for public firms to switch from quarterly to semiannual reporting. It then proposed paring down filer statuses to just two and a related loosening of disclosure requirements for many filers. And it commenced a formal end to climate-related disclosure reporting rules.

In a statement from May issued on the SEC website, Chair Paul Atkins wrote, “The current public company regulatory framework is in dire need of a comprehensive overhaul,” and that the last quarter century of rulemaking has created “complex, overlapping requirements and benefits.”

Of course, the proposals are just that at the moment, no matter how inevitable some may seem (one expert CFO Brew spoke with earlier this year called the climate rule rescission “a foregone conclusion”). Organizations need to follow “the rules as they currently exist,” David Peavler, a former enforcement attorney at the SEC and partner at law firm Jones Day, wrote in an email to CFO Brew.

Think it over. While the proposals are receiving public comments, companies should take the time to assess how the rules may impact “things like debt covenants, Regulation FD [Fair Disclosure] practices, and insider trading policies,” Peavler advised.

In addition, they should consider other stakeholders before, say, adopting semiannual reporting, according to Ro Sokhi, a partner at UHY. Companies that report twice a year might benefit from a longer-term focus, not having to worry about delivering results in three-month chunks, he said. However, investors may still expect quarterly updates. Companies that move away from that may “lose equity coverage,” he said.

“Yes, there’s potentially some cost savings that they may find, but there potentially may be other costs that companies need to think about,” Sokhi said, “and they may just continue reporting quarterly regardless.”

We just got a letter. Peavler said his firm is “encouraging and helping clients” shape the rulemaking through the “comment process.” The comment deadlines on these rules range between early July and early August.

Based on the comment letters the commission has gotten so far, the reception to the contemplated reforms is mixed. “Every measure the commission has proposed that limits required disclosure to what is material to the reasonable investor, reduces the burdens of being a public company, and re-opens the on-ramp to the public markets,” including the semi-annual reporting and filer status proposals, Louis Lehot and Patrick Daugherty, partners at law firm Foley & Lardner, wrote in a supporting comment letter.

Marc Steinberg, a law professor at Southern Methodist University Dedman School of Law, wrote that he generally agrees with efforts to reduce “the unduly burdensome disclosure requirements that currently exist.” But the SEC’s rollback of some SOX requirements for smaller public companies, he argued, goes too far. “It is disheartening to see the commission going out of its way to be protective of corporate insiders to the detriment of shareholder protection and sound corporate governance practices.”