This document contains comments on disclosure requirements for businesses and finances as required by regulations. Several comments discuss balancing the costs and benefits of required disclosures for both registrants and investors. There is discussion around tailoring requirements based on materiality and industry to reduce unnecessary costs while still providing useful information to sophisticated investors. Comments also address potential relocations of certain required disclosures to improve flow and readability.
1. CONCEPTRELEASE: BUSINESSAND FINANCIALDISCLOSUREREQUIREDBY REGULATION
Request
comment
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Personal comments
21 Confidential treatment,sealeddisclosures,NoActionLetters,waivers,extensionsare justmain
accommodationsusedtolessenthe toll of the disclosure. There isanotherimpendingaccommodation
calledclawbackrules(newRule10 D-1 gives rightsto the compensation committeeto seekto recover
paymentsof incentivecompensation if theperformanceresultleading to thepaymentarelater subjectto
downward adjustmentorrestatementof financialornon-financialperformance),itisrelatedtoexecutive
compensation. The benefitsof the disclosure are legal costs,reputationalvalue andotherscanbe
sometimesquantifiedbyreviewingthe trendinthe SEC enforcementactions.
22 In additionof scaleddisclosuresandconfidential treatment,we have NAL,extensionsandotherwaivers,
whatwe can do isto improve these rulesandprocessesandfix themproperly
23 On 21 and 22, I gave mainbenefitsandcostswe mustevaluate fordisclosure effectivenessinitiative
24 The problemwithitem101(a)(1) isthe requirementof the yearwhichthe registrantwasorganizedandits
formof organizationbecause all websitesof companiesmustcontainthisinformationasabasic. I have no
problemwiththe factthat form8-K (item1.03 and2.01) requiresthe same types of information. Itisa good
repetitionkeepingthe registrantsfromabusesof excusesargumentaboutlackof reliance
25 Item101(a)(1) isnot that bad,removingthe requirementof the yearwhichthe registrantwasorganizedand
itsform of organization will make itbetter. Ido not mindkeepingthe 5 yearsrequirement,butthe
alternative if anywill be 4or 3 yearsrequirement
26 Thisdisclosure isnotas useful asitseemsto. It wouldbe bettertorequire registrantstoprovide a
descriptionof itsbusinessascurrentlyconducted. Inaddition,the registrantcanprovide adiscussionof any
material changesthathave occurredin the last5 years
27 I will notrecommendanyrevisionof item101 (a)(1) to require adisclosure of a registrant’sbusiness
strategy. Althoughsome investorsmayneedthisdisclosure,itcanresultina huge competitive costtothe
registrant. Letsay may be witha differentdefinitionof ‘businessstrategy’,itmaywork.
28 A summarydisclosure of the general developmentof a registrant’sbusinessinall filingsexceptthe initial
filingwillworkbetter. Thatsaidthere’snoneedfora more detaileddisclosureof aregistrant’sbusiness
29 Sophisticatedinvestorsare mostlikelytovalue the informationrequiredbyitem101(a)(i)
30 The cost of providingthe disclosure requiredbyitem101(a) isnot clearwhenregistranthasto exactly
provide anticipatedmaterial acquisitionof plantorequipment,anticipatedmaterial change innumberof
employees. Idonot have anyfigure of the change as a resultof anticipatedregulationchanges
31 101(c) still providesuseful informationtothe investors. Ibelievethatbacklogdisclosure needstobe
relocatedinthe MD&A, givingthe opportunitiesforthe registrantstodiscussissuessurroundingbackloglike
production,plants,distance,inventoryspace,… In addition,Idonot believethatregistrantsneedtobe
requiredtodisclose the namesof theircustomers. Theycando so if theychoose to butthisdisclosure can
resulttocompetitive costs. Atthe same token,I do notwant registrants tofile forconfidential treatment
everytime theyare makinganydisclosure
32 In a competitive industry,itcancreate unnecessaryfilingforconfidentialtreatment Iwantto reduce the cost
and impact
33 The election of tabulardisclosure andchartscan improve the qualityof thisdisclosure especiallywhenthe
registrantisexperiencingchanges
34 General descriptionof the businessisnotusefulatthislocation(maybe businesssection)
35 Industryspecificdisclosure canbringsome lights onhow some registrantsdeal withcertainissue like
backlogs,…inthe ownindustrybutitmustbe done basedon prescriptiveapproachorregistrantswill choose
2. to disclosure whatwill helptheirmarketsharesprices.
36 13 itemsrequirementsinitem101c are too much, itwill require achecklistoryouwill forgettodisclose
informationrelatedtosome items
37 101c isimportantand shouldbe required inevery 10-KfromEGC to highlyacceleratedfilers
38 Some informationcurrentlydisclosedinthe descriptionof businesscanbe discussedinthe MD&A
39 Requirementsshouldbe basedonmateriality (tests)because we are calledtosimplifythe disclosure and
remove all unnecessaryfacts. Thiskindof disclosurewillcreate lesscamouflage of baddataand more focus
on informationneededtomake a votingandinvestmentdecisions. We can onlydevelopaprescriptive
disclosure systemwithoptionstoregistrantstoexercise theirrightsforvoluntarydisclosure,something
closerto decision basedapproach.
40 Sophisticatedinvestorswillfind101c veryuseful withall its13 itemsrequirements. Some tabular
representationandchartscan improve itsqualityandserve itsreaders includingprofessionsophisticated
investors better
41 It isno easyto quantifythe costof thisdisclosure butforcompetitive reasonwe shouldavoiddisclosingdata
withadverse effectoncompetitionorrequiringregularfilingof confidential treatment
42 We shouldenhance the disclosure of item101(c)(iv) toincludecopyrightsandotherIP. There isnothingto
define withthislist,we shouldonlyaddcopyrightandotherIP
43 I believeitisgoodto addother IPfor industrybasedapproach,eachindustrywill addwhatthe registrant
thinkitwill helpitsreadersandinvestorstounderstand itsspecificindustry
44 It doesnotmatter the registranthasa lotof IP, itmust be basedon itsdisclosure andmaterialitytest. A
tabulardisclosure willbe easytodigestforaverage reasonable investor,itmustfocusonexpirationdate
(withorwithoutrenewal clause of amajorIP)
45 It will nothelpthe whole philosophyandpotential legalchallengeof it,leavingthe industryguides including
pharmaceutical,technology,manufacturing,…,the opportunitytoguide these specialized registrantsinthe
bestinterestof the investingpublic andtransparency
46 Disclosure of specificexpirationdate of IP,...,canleadto expertsexodus whilemakingthe registrant
vulnerable toitscompetitors.
47 Disclosure aboutgovernmentcontractsisveryimportantwhenitismaterial. Remediationactioncanbe
addedbecause thisoutsourcingisone of the bestcontractual arrangements
48 It dependsonmateriality,if agovernmentcontractismaterial,itdoesnotmatterthanthe registrantisnota
governmentcontractor,investorsmostlysophisticated one will be bestinformedwiththe full disclosure of
the governmentcontract(IBNR,remediation,arbitration,…). Butdiscussionaboutthisoutsourcingcanbe
locatedinthe MD&A
49 We shouldkeepthiscurrentdisclosure of item101(c)(1)(xii) the wayitisnow
50 Thisdisclosure isimportanttoinvestorsif itismaterial because ithaslegal andreputational costs,itis
appropriate where itislocatednow
51 We shouldrequire all disclosuresaboutmaterial effectsthatotherregulationmayhave onregistrant’s
capital expenditures,earningandcompetitive positions
52 The current disclosure requirementissufficient
53 We shouldrequire registrantstodescribe ordiscussforeignregulations impactingtheiroperationsand
financial conditions. Thisinformationwill helpinvestorsevaluate foreignoperationandmake informed
investmentdecision
54 Disclosure of the numberof employeeshelpinvestorsunderstandthe qualityorvitalityof the operation
includingoverstaffedornot,full time,parttime andindependentcontractors. Thisdisclosure canhelp
investors’ readerstounderstandhow the companymanagesriskrelatedtoitshumancapital.
55 Thisinformationisnotreallyusefulbecause of itsforecastingapproach. Butitdoesgive ideaof the growth
forecastedby the new registrantitself
3. 56 Full Time,PartTime,independentcontractors,domestic,foreignemployees’categorieswill helpthe investor
readersto understandhowthe registrantismanagingriskrelatedtoitshumancapital. Alsoaverage years
withthe company,unionand non-union memberswill helptomeasure the levelof commitmentandhappy
workforce thatmeansproductivity
57 As longas the registrantispayingitsworkforce,itcancount themwitha little additional cost. Itiswhyit
mustproduce a specificnumberof workforces because itreducesthe companyreputational costs. There is
not organizationwithoutworkforce; the workforce isthe nucleusof the company. Everthe robotizationof
the workforce will noteliminatethe workforce,itiswhyinvestorsneedthisinformationinorderto
understandhowthe nucleusis(will) performing(perform).
58 Disclosure aboutunionmembership,robotizationof the workforce,difficultyof hiringgoodexperts,
employeescommitmentcouldfindgoodlocationinthe MD&A. A simple tabulardisclosure canincrease the
qualityof thisdisclosure.
59 Outsourcingandsubcontractingarrangementscancreate huge coststo the registrant;itis whywhenitis
material. Registrantmustdisclosethese arrangements,theirnames, andexperiences,the typesof
arrangement,monitoringandreview systemif itincluded inthe clause.
60 Item102 cannotbe eliminated. Forsome industrieswithlessmaterial plants,officesandotherreal estate
impactingtheiroperation,thisdisclosure canbe relocatedinthe MD&A. It will be improvedoverthere with
a discussion
The whole issue forinvestorsis how manypropertiesaregistrantrents,owns orleases andcan use whenit
isexperiencinggrowthorcan sell,rentorlease whenitisexperiencinghighvacancy. Iwill addthat rentor
buystatus showssome kindof commitmentinthe area,availabilityof liquidity,availabilityof fixedassets,
longtermstrategyplanor otherinterpretations
61 The current disclosure of item102 issufficienttoinvestorsasfar as I am concerned. If disclosed
compliantly,itwillhelpinvestorsmake aninformedinvestmentdecision.
62 Like I said,the disclosure aboutregistrant’sheadquarters,officesspacesandvacancyand otherfacilitiesis
importantto itsinvestorsorpotential investorsandreaders
63 Enhanceddisclosure aboutpropertydisclosureoutof MD&A can be requiredonlyformanufacturing,retail
and alike industries.
64 Duringrapidgrowth,the availabilityandcostsof propertiescanincrease forregistrantwithalittle setaside
space and vacancy. It iswhysome of these risksshouldbe forecastedanddiscussed.
65 Sophisticatedinvestorsare more likelytovalue the informationrequiredbyitem102
66 Oil and gas industry cannottechnicallycomplywiththisrule withoutthe approval of anyconfidential
treatmentbecause of secrecysurroundingundevelopedanddevelopedwellsandcompetitive environment.
There isa needforchangesto reduce the numberof confidential treatmentfilingandcompetitive costs.
These changeswill restore some friendshipbetweenthe regulatorsandthe registrantsfromthisspecialized
industry.