SEC Division of Corporation Finance Director Bill Hinman discussed the SEC's principles-based disclosure scheme and how it applies to complex, uncertain and rapidly evolving risks such as Brexit at last week's 18th Annual Institute on Securities Regulation in Europe.
Among other key takeaways, Hinman imparted meaningful guidance to companies on Corp Fin's perspective and expectations relating to Brexit-related risk disclosures. While acknowledging that Brexit impacts are very much company-specific, his remarks include a list of potential associated risks - including regulatory, supply chain, customer demand, currency, and contractual risks - that companies should evaluate and consider integrating into their Brexit disclosure if applicable, and as applied to their specific facts & circumstances.
This excerpt is particularly noteworthy:
Given the differences across industries and companies, there is no one specific data point or prescriptive piece of information that all companies could provide to disclose material information relating to their Brexit-related risks. Rather, investors are better served by understanding the lens through which each company’s management looks at its exposure. How does management assess and analyze Brexit-related risks and the potential impacts on the company and its operations? What is management doing to mitigate and manage these risks? What is the nature of the board’s role in overseeing the management of these risks? Depending on the facts and circumstances of each company, the answers to these questions should provide material information to investors seeking to understand the risks attendant to Brexit for that company. One analytical tool to evaluate disclosure in this context is to consider how management discusses Brexit-related risks with its board of directors. Obviously not all discussions between management and the board are appropriate for disclosure in public filings, but there should not be material gaps between how the board is briefed and how shareholders are informed. For those of you involved in crafting disclosure documents, you can ask yourself a straightforward question: would these disclosures satisfy the curiosity of a thoughtful, deliberative board member considering the potential impact of Brexit on the company’s business, operations and strategic plans?
He also addressed sustainability disclosure, generally indicating: (i) that the views among and between companies and investors as to material and useful disclosure are still very much disparate, evolving, and in flux; (ii) the SEC is disinclined to impose a disclosure scheme with questionable value to investors (based on consideration of the materiality of information to investment decision-making) that will likely increase the costs associated with companies going/remaining public; and (iii) the current flexible, principles & materiality-based disclosure framework, which should - among other things - enable investors to see the company through the eyes of management, should inform companies' evaluation of their disclosure in all areas, including long-term sustainability risks. He also noted specifically as to climate-related disclosures the SEC's 2010 guidance, which he indicated is still viable.
See also "Corp Fin Director discusses Brexit and sustainability disclosure" (Cooley), "SEC Official Speaks to Sustainability Disclosure" (Stinson Leonard Street), "Boardroom Brexit: What next after a dramatic week in UK politics?" (DLA Piper), and the WSJ's "U.K. Parliament Votes to Delay Brexit as Turmoil Drags On," and these prior reports: "Brexit Risk Disclosure Examples," "Brexit-Related Risk Framework," "Reminder: SEC Focused on Cyber, Brexit, LIBOR-Related Disclosure," "SEC Looking for Better Brexit/Cyber/Libor-Related Risk Disclosure,""SEC's Peirce: We Need Shareholder Proposal Reform, Not ESG Disclosure Mandates," "SEC Chair Clayton & Others Weigh in on ESG Disclosure," "SEC Commissioner Peirce Critiques Broader Stakeholder-Focused Governance" and "Capital Formation: SEC Commissioner Peirce Speaks!"