A few hours ago, SEC Chairman Paul Atkins delivered this speech at the Society of Corporate Governance conference. Besides the excitement of this Cooley Alert being cited several times in the footnotes, the speech touched upon the reforms underway related to disclosure materiality and shareholder proposals as follows:
a. Disclosure Materiality
1. Restore SEC Disclosure to Materiality: Chairman Atkins argued that the SEC should return to its core mission of requiring disclosure only of material information that is important to reasonable investors, rather than continuing to expand disclosure requirements.
2. Disclosure Overload Harms Investors: Lengthy SEC filings can overwhelm investors with immaterial information, making it harder to identify what truly matters while significantly increasing compliance costs and management time. Chairman Atkins cited Justice Thurgood Marshall’s warning against “burying” investors in trivial information.
3. Rejection of Alternative Materiality Standards: Chairman Atkins criticized concepts such as “double materiality” and “decision useful” as departures from established principles of federal securities law, emphasizing that materiality should remain focused on information relevant to investors’ financial returns.
4. Creation of a ‘Materiality Overlay’ for Regulation S-K: A central proposal is to allow companies to omit otherwise required Reg S-K disclosures if they are not material to a particular company. This would create a more principles-based disclosure framework while preserving investor-relevant information.
5. Companies Must Exercise Judgment: Chairman Atkins stressed that disclosure reform alone is insufficient if companies continue to include every historical disclosure or simply copy peer filings. Chairman Atkins warned against a “disclosure death spiral” in which unnecessary disclosure continually expands because no one is willing to remove outdated information.
6. Responsibility Ultimately Rests with Companies: While the SEC can modernize its rules, companies themselves must take ownership of the clarity, volume and usefulness of their disclosures. “The buck stops with you.”
b. Shareholder Proposals
1. This Proxy Season Demonstrated Less Corp Fin Involvement Can Work: Chairman Atkins highlighted that, after Corp Fin stopped issuing Rule 14a-8 no-action responses during this past proxy season, the feared disruption didn’t occur. Proposal omission rates remained similar, litigation was limited and direct engagement between companies and shareholders arguably increased.
2. Corp Fin Will Likely Continue to Not Referee the Rule 14a-8 Process: Chairman Atkins questioned whether the SEC should continue serving as an intermediary in shareholder proposal disputes, suggesting that companies and shareholders are capable of resolving many issues themselves without routine SEC staff intervention.
Between Chairman Atkins’ speech and Corp Fin Director Jim Moloney’s remarks on a panel later in the day, it seems that the SEC is highly likely to keep the status quo from this past season going forward – although it should be noted that the SEC’s decision last year to not referee the Rule 14a-8 process (unless a company is seeking relief under Rule 14a-8(i)(1)’s “not a proper subject under federal or state law” – which hasn’t happened yet) is still in litigation. Thus, we are likely to see Corp Fin at some point extending the September 30th deadline mentioned in this statement…
3. The Upcoming Fundamental Review of Rule 14a-8: Beyond procedural changes, the SEC is reconsidering the broader purpose and legal foundation of Rule 14a-8, including whether the federal government has become too involved in an area traditionally governed by state corporate law.
4. Opposition to Politicization of Shareholder Meetings: Chairman Atkins argued that annual meetings should focus on issues affecting shareholder value rather than serving as forums for broader political or social debates. He urged companies and states to resist allowing the shareholder proposal process to be “weaponized” by special interests.
5. Concern Over A Small Group of Shareholder Proponents Dominating the Process: Chairman Atkins pointed to the fact that a single shareholder proponent sponsored approximately 41% of proposals voted on during this past proxy season – with only 8% receiving majority support – as evidence that the current system allows a small minority to exert disproportionate influence over corporate agendas.
Authored by
Broc Romanek