September 28, 2022

SEC’s Investor Advisory Committee Meeting: “Warm Fuzzies” for Rulemaking

When I was an elementary-aged kid, our guidance counselor would come in and sing a song about “warm fuzzies” – the nice things you say to lift up your classmates when they’re getting criticized by others or feeling down. If complaints against the SEC’s ambitious rulemaking agenda are getting to SEC Chair Gary Gensler, then last week’s Investor Advisory Committee must have been a nice pick-me-up.

The IAC met to cover its previously announced action-packed agenda – which in itself was a sticking point for Commissioner Peirce. Not surprisingly, the IAC mostly gave “warm fuzzies” on the SEC rulemaking initiatives that will require more disclosure from companies.

This blog from Cooley’s Cydney Posner recaps the discussion. Here are a few condensed takeaways:

1. Human Capital: Investors think the 2020 rules are a step in the right direction, but don’t provide enough comparable & actionable data. Some panelists suggested using SASB standards as a starting point for reporting.

A JUST Capital representative said that fewer than 20% of the largest 100 employers reported on 29 metrics that she identified as being important (wages, hours, training investments, turnover, DEI, etc.) – and with a lot of non-standardized info appearing in website sustainability reports rather than the Form 10-K, data collection is laborious.

2. Schedules 13D and 13G Beneficial Ownership Reports: Investors have mixed views on the SEC’s proposal to shorten the Schedule 13D filing deadline and amend the definition of “group.” Those who oppose the proposed amendments believe they would improperly insulate companies from activist shareholder challenges. Those who support the proposed amendments believe it would helpfully address “information asymmetry” and benefit shareholders as a whole.

3. Climate Disclosures: The Committee adopted a recommendation in favor of the SEC’s climate disclosure proposal – with suggestions for improvement, such as a safe harbor for disclosures of “Scope 3” emissions. The Committee also suggested adding a “Management’s Discussion of Climate-Related Risks & Opportunities” and dropping the disclosure requirement about climate-related board expertise.

4. Cybersecurity Disclosures: The Committee also adopted a recommendation in favor of the SEC’s cybersecurity disclosure proposal – again, with suggestions for improvement. Investors favor the notion of adding a Form 8-K trigger and disclosure of policies, procedures & board oversight of cyber risks. Investors suggested enhancing comparability among companies by requiring disclosure of key factors used to determine materiality of a cyber incident. The Committee doesn’t support “law enforcement” exceptions for incident reporting. The Committee also doesn’t support the requirement to disclose directors’ cyber expertise, because investors want it to be clear that the full board is responsible for cyber oversight.

Liz Dunshee