SEC commissioners Herren Lee and Jackson call for comment on new disclosure proposals

They call for investors to say: this is not what we want.

The SEC’s proposal to “modernize the description of business, legal proceedings, and risk factor disclosures that registrants are required to make pursuant to Regulation S-K” that was published earlier this month has come under significant fire from two SEC commissioners, Allison Herren Lee and Robert Jackson.

While grateful that disclosures surrounding human capital are being contemplated, they are dismayed that no moves have been made to require climate risk disclosures in addition. While recognising the difficulty of making climate risk disclosures, they add: “we are long past the point of being unable to meaningfully measure a company’s sustainability profile”.

In addition, the proposal supports a principles-based approach rather than principles plus line-item disclosures that are favoured by investors.

The commissioners raise three concerns with the principles-based approach: it gives management too much discretion over what is disclosed and how; it produces inconsistent information that prevents cross-company comparisons; and it will fail to give investors the information that they need. All of these problems also raise the costs of investment analysis and thus make capital more expensive.

The commissioners note that: “investors representing trillions of dollars, and our Investor Advisory Committee, have urged the SEC to require specific, detailed disclosures reflecting the importance of human capital management to the bottom line” which the SEC has, again, ignored. Their call to arms continues: “We hope that commenters will make sure we get this balance right by letting us know what, if any, specific measures would be useful for investors.” At least this proposal is out for public comment, they intimate, unlike the latest ‘guidance’ on the use of proxy advisors.

Commentary: The Business Roundtable statement on Corporate Purpose

Meanwhile, now the dust has settled on the statement on corporate purpose from the Business Roundtable (BRT), let’s take a look at what it means in practice.It allows 192 CEOs of many of the largest companies in the US and elsewhere to put their stakeholders in this order: customers, employees, suppliers, communities and, finally, shareholders.
This provoked a storm: there were six op-eds in the Washington Post alone, and less than half were favourable. But many other reactions and commentary were impressed with the expression of this new social conscience.

So what might be wrong with the statement?

Ken Bertsch, head of the Council of Institutional Investors, said in a release that he respectfully disagrees with the BRT statement. “Accountability to everyone means accountability to no one,” he writes. “BRT has articulated its new commitment to stakeholder governance (which actually resurrects an older policy view) while (1) working to diminish shareholder rights; and (2) proposing no new mechanisms to create board and management accountability to any other stakeholder group.” This last is the key. He notes also that the statement references shareholders merely as providers of capital, not owners.

Again, not a popular view among shareholders. [Editor’s note, see Carlos Tornero’s piece on this issue here.

Andrew Behar of As You Sow notes in an op-ed that the BRT has continually opposed “shareholders who raise social, environmental, and even governance issues” saying that they “are wasting the time and money of corporations and shareholders.”

Clearly that will come to an end, he says, when this new statement of purpose is implemented. The new statement, he continues, clearly signals: fair wages for all, not just CEOs, inviting employees onto the board and gender pay equality. Unsafe products will also be off the shelves, modern slavery in supply chains will be ended, and environmental degradation and abuse will be terminated. It sounds like a utopia.

The problem is that the statement is signed by the CEOs of a range of companies whose actual behaviour, not their words, too often reflects their real corporate purpose.