SEC Chairman Paul Atkins on Principles-Based Disclosure

Scaling back decades of “accretive rulemaking” in favor of an overarching materiality gloss won't work without safe harbors

SEC Chairman Paul Atkins is pursuing an ambitious deregulatory agenda centered on reform of key disclosure mandates, such as revising Regulation S-K, allowing semiannual rather than quarterly reporting, and rescinding the Biden/Gensler climate mandates.

Earlier this month, Chairman Atkins gave a speech to the Society for Corporate Governance in which he explained the need for major reform of the SEC’s disclosure regime:

Years of accretive rulemakings—some eliciting immaterial information—have produced reams of paperwork that can do more to obscure than to illuminate. As Justice Thurgood Marshall once warned, “Some information is of such dubious significance that insistence on its disclosure may accomplish more harm than good. Bury[ing]…shareholders in an avalanche of trivial information [is] a result that is hardly conducive to informed decision making.”

As investors struggle to parse and understand—or choose to simply ignore—today’s lengthy annual reports and proxy statements, companies also incur substantial costs to prepare those documents. These costs are financial, of course, but temporal no less—composed not only of fees for armies of specialized lawyers, accountants, and consultants, but also the opportunity costs resulting from significant use of boards’ and management’s time.

FYI

I largely agree with Chairman Atkins, but I note that there is a plausible argument that in today’s market the key audience for corporate disclosures is not retail investors but rather price-setting investors such as hedge funds and small, actively trading institutional investors. After all, the evidence suggests that they are the investors whose trading activity tends to set prices:

Overall, small, active investment advisers have the largest influence on valuations, according to the researchers. Controlling for size, they find that hedge funds tend to be the most influential. “Per dollar of capital, they are much more influential than pension funds and insurance companies” ….

In remarks, Atkins framed the project as one of restoration rather than reinvention. He argued that the SEC should return to “first principles”—namely, materiality as the foundational principle of federal disclosure law—rather than continue down the path of “accretive rulemakings” that often elicit “immaterial information.” He proposed operationalizing that process via a “materiality overlay” for Regulation S-K, which would let companies omit line-item disclosures that are not material to their business, and, more broadly, being open to principles-based rulemaking in place of prescriptive, one-size-fits-all line items.