- within Compliance topic(s)
Key Takeaways
- Securities and Exchange Commission (SEC or Commission) Chairman Paul S. Atkins praised increased competition among states for corporate domiciles, highlighting Texas as a potential alternative to Delaware for public companies seeking reduced litigation risk and less-politicized governance.
- Atkins outlined a three‑part framework for reforming SEC disclosure requirements – rationalizing, simplifying and modernizing – centered on materiality and investor usefulness.
- The remarks suggest potential momentum toward narrower executive compensation disclosure, reduced reliance on “comply or explain” governance disclosures, and reforms to risk factor reporting, including a potential new safe harbor provision.
- Public companies should monitor developments in both state corporate law and SEC rulemaking, as these themes may influence future regulatory priorities and enforcement expectations.
Overview
In remarks delivered on Feb. 17 at the Texas A&M School of Law Corporate Law Symposium, SEC Chairman Paul S. Atkins outlined a vision for the Commission and U.S. markets as a whole that emphasizes state‑level competition in corporate law and a more restrained federal disclosure regime grounded in materiality and investor usefulness. His remarks offer insight into potential future priorities for SEC rulemaking and enforcement, particularly with respect to executive compensation, corporate governance disclosures and risk factor reporting.
State Competition and Corporate Domicile
Atkins situated his remarks within a broader concern about the declining number of U.S. public companies and the role that state corporate law plays in shaping capital formation. Against that backdrop, he described Texas as actively positioning itself as a potential alternative to Delaware by pursuing a corporate law framework designed to reduce politicization, limit litigation and provide companies with greater predictability. Atkins underscored that competition among states for corporate charters is healthy and necessary for innovation.
Using the example of mandatory arbitration provisions in corporate charters, Atkins noted that while the SEC will not stand in the way of such provisions, states such as Delaware recently prohibited mandatory arbitration for federal securities law disputes. He then asked, “What will Texas do?”
While not advocating specific choices for issuers, Atkins suggested that continued experimentation and competition among states could prompt broader reforms and recalibration of corporate law norms.
Disclosure Reform: A ‘Minimum Effective Dose of Regulation'
Atkins devoted much of his time to the topic of disclosure reform. He described his vision for SEC disclosure reform as a return to the Commission's original mission of protecting investors “with the least possible interference with honest business.”
Noting that he seeks to achieve a “minimum effective dose of regulation,” Atkins described what he views as the need for a reassessment of the SEC's disclosure framework and Regulation S-K, centered around three guiding principles:
- Rationalizing Disclosure. Atkins emphasized materiality as the “North Star” for disclosure, questioning whether current requirements – such as detailed compensation disclosure for multiple executives – are consistently aligned with what is material to investors.
- Simplifying Disclosure. He criticized highly technical and complex rules, including pay‑versus‑performance disclosures, arguing that disclosure requirements should be intelligible to reasonable investors without requiring extensive reliance on specialized consultants.
- Modernizing Disclosure. Atkins highlighted examples of disclosure rules that he views as outdated, including the treatment of executive security arrangements as personal “perks,” suggesting that current rules do not always reflect modern business and risk realities.
Atkins also expressed concern about disclosure requirements that function as indirect regulation of corporate governance practices. He criticized “comply or explain” provisions that, in his view, pressure companies to conform to preferred governance structures. Atkins stated that “[a]bsent a congressional directive, it is not the SEC's role to enforce evolving notions of ‘best practice' governance standards through what I consider ‘regulation by shaming.'”
These remarks are consistent with recent indications that the Commission is seeking to pare down required disclosures. Just last month, the SEC announced that it would conduct a comprehensive review of corporate disclosure requirements under Regulation S-K, noting that “Regulation S-K currently elicits both material and a plethora of undisputably immaterial information.”
Risk Factor Disclosure
Atkins also discussed changes to risk factor disclosure, observing that what was originally intended to be a concise discussion of the risks that “keep management up at night” has evolved into one of the longest sections of the Form 10‑K. He noted that this expansion is not driven by the text of Regulation S‑K, which expressly calls for disclosure of material, company‑specific risks and discourages generic ones, but instead appears rooted in litigation dynamics. As a means of curbing litigation-driven disclosures, Atkins suggested a type of safe harbor provision where the SEC could “adopt a rule stating that failure to disclose impacts from publicized events that are reasonably likely to affect most companies will not constitute material omissions.”
Practical Considerations for Public Companies
For executives and audit committees, Atkins' comments underscore the importance of actively overseeing disclosure effectiveness, not just disclosure completeness. Companies should consider whether current disclosures, particularly in areas such as executive compensation, risk factors and governance practices, are meaningfully aligned with materiality and investor understanding or whether they have expanded primarily in response to litigation or reputational concerns. As regulatory attention shifts toward rationalization and simplification, audit committees may wish to engage management and outside advisers in periodic reviews of disclosure controls, escalation processes and drafting practices to ensure that disclosures remain accurate and defensible, while avoiding unnecessary complexity that can increase risk without corresponding benefit. The forthcoming changes to long-standing disclosure practices will merit new attention to potentially streamlined requirements.
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