There is plenty of work before the Securities and Exchange Commission, not the least of which is pushing out the many lingering rules to flesh out the Dodd-Frank Act. While the SEC works to finish the rulemaking, there is no shortage of feedback from the public.

Day-by-day, the pool of public comments weighing in on those proposals grows deeper with corporate political spending, executive compensation, and foreign payments among the topics generating the most buzz. Digging through the comments can provide a sense of where different factions of the public stand on the proposals, how much controversy surrounds the issue, and, potentially, how much companies and investor groups care about any given issue.

But don’t be fooled; some topics, even minor ones, can generate thousands of comment letters, while some big important projects get only a scattering of responses. The SEC’s comprehensive review of the disclosure process, for example, has garnered just 20 comment letters to date.

The SEC’s public comment process is a cornerstone of its rulemaking efforts. When a rule proposal or concept release is issued, a public comment period of between 30 to 60 days begins. The comments, typically divided between investor advocates and corporate concerns, range from repetitive form letters to detailed research papers. The SEC uses the comments to shape and tweak the final rule, which typically will include a narrative of what suggestions found favor and others that did not alter the final regulations.

Although certainly an unscientific review, counting those comment letters, and parsing their content, offers a glimpse into what businesses and investors care about. The issue that attracted the most public comments by far, 1.2 million, was not a Dodd-Frank-related regulation, but rather a citizen’s petition calling for disclosure of political spending. The largest cluster of correspondence, much of it in form letters, favors the petition, with roughly 95,000 writers urging the SEC to put the matter back on its agenda.

The Sunlight Foundation, a non-profit organization devoted to government transparency, recently launched a new online tool for tracking the SEC’s regulatory docket, in particular the public comments companies, activists, and others make on proposed rules and petitions. IT developed the “Docket Wrench” tool, which also includes rulemaking by the Commodity Futures Trading Commission, with support from Transparency International and the Thomson Reuters Foundation.

“Business disclosure should not be akin to a game of ‘Where’s Waldo’ in which a reader is left suspecting that critical information is buried somewhere in the document, but good luck finding it.”
Michael Young, Representative, Committee on Financial Reporting

On average, the SEC and the CFTC proposed more than twice as many rules per year since the passage of the Dodd-Frank Act compared to the five years leading up to it. The number of public comments received on these rules has also ballooned, from an average of 39,249 in the five years before passage to 185,697 afterwards, five times as much.

Say What You Pay

The disclosure of payments oil, gas, and mining companies make to foreign governments for extraction rights also attracted significant attention, with nearly 150,000 comments thus far. The proposed rulemaking is being re-proposed following a successful legal challenge by the American Petroleum Institute and U.S. Chamber of Commerce.

Much of the feedback criticizes the disclosure proposal as overly burdensome. Hal Quinn, CEO of the National Mining Association, for example, weighed in with concern that “simultaneous design of the [Dodd-Frank regulation] and the Extractives Industry Transparency Initiative process overseen by the Department of the Interior may result in duplicative, burdensome, and complex revenue transparency requirements.”

Harry Ng, general counsel for the American Petroleum Institute, added to those concerns, writing of “significant economic and competitive harms” and urging the SEC to consider ways to alleviate that burden. To that end, Kyle Isakower, vice president of regulatory and economic policy for API, urged the SEC to allow non-public disclosures. It has “discretion to hold individual company data in confidence, and to use that data to prepare a public report consisting of aggregated payment information by country,” he wrote. “A high-level, public report would address many of industry’s concerns.”

“Disclosure in the United States of revenue payments made to foreign governments or companies owned by foreign governments, in relation to all or part of our activities, is prohibited by law in the following countries: Cameroon, China, and Qatar,” warned Martin Brink, executive VP controller for Royal Dutch Shell.

Say What You Are Paid

Executive pay is another big draw for comment letters. A controversial Dodd-Frank proposal requiring companies to disclose a comparison of their CEO’s pay to that of the median employee drew nearly 130,000 comments and counting.


The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness recently itemized a variety of recommendations it wants the Securities and Exchange Commission to pursue as part of its disclosure regime review. Among the suggestions:
“In rethinking the disclosure regime, the guiding principle should be materiality. Materiality has long been the touchstone for determining the line between what should be disclosed (material information) and what should not have to be disclosed (immaterial information) under the federal securities laws.”
“Considering materiality through the eyes of a reasonable investor is significant. Such an approach reduces the risk that disclosure documents will become even more difficult for investors to wade through, as they surely would if disclosure mandates increased based on the almost endless unique or personal interests of different investors.”
“The SEC’s requirements for the disclosure of risk have expanded in a piecemeal fashion over many decades. Companies are required to discuss risks to the business under various items of Regulation S-K, including, among others, Item 101 (Description of Business), Item 103 (Legal Proceedings), Item 303 (MD&A), Item 305 (Quantitative and Qualitative Disclosures About Market Risk), and Item 503 (Risk Factors)… Over the longer term, a more fundamental rethinking about how companies disclose material risk and their approach to risk management is in order. We support the S-K Report’s idea to consider consolidating “requirements relating to risk factors, legal proceedings and other quantitative and qualitative information about risk and risk management into a single requirement.”
Source: SEC.

Raymond Link, CFO of FEI Co., a supplier of scientific instruments with an international workforce, expressed concern about the complexity of the calculation. He estimates it will take over 1,000 hours, at a cost of $250,000, to develop the database and methodology the SEC’s proposed rule requires. On an annual basis, 500 man hours would be needed to support the ongoing effort, at a cost of more than $100,000. His suggestions for alleviating that burden include defining “employees” as only those employed by the U.S. parent organization and domestic subsidiaries, effectively all employee compensation reported to the Internal Revenue Service.

Timothy Bartl and Henry Eickelberg of the Center on Executive Compensation, an advocacy group representing human resource executives, detailed a litany of concerns. Among them:  

“By requiring companies to disclose the pay ratio in the proxy, there will be a natural and unavoidable tendency to conclude the pay ratio constitutes material information. In this respect, the pay ratio is not only inherently misleading, but potentially harmful to investors, registrants, and the public in general.”

“Company-to-company pay ratio comparisons will only serve to mislead investors.”

 “Changes in business structure, employment arrangements, or pay practices will result in fluctuations in the pay ratio. Absent lengthy and likely complex explanations about the factors that led to the changes in the pay ratio, it will be impossible to glean inferences from year-to-year changes in the pay ratio.”

Among the recommendations they, and others, made in comment letters:

Limiting the disclosure to U.S. employees only, a move estimated to reduce compliance costs by nearly half.

Limit the disclosure to full-time employees only.

Allow a 12-month “look-back period” for establishing the employee population measurement date.

Whistleblower Protections

A Petition for Rulemaking that seeks to strengthen whistleblower protections is also getting its fair share of comments. Spearheaded by the law firm Labaton Sucharow and the Government Accountability Project, two petitions call upon the SEC to address “unscrupulous legal maneuvers” by companies, including preventing employees from consulting independent legal counsel, requiring notice of external reporting, demanding waivers of any future whistleblower awards, and threatening lawsuits to enforce secrecy agreements. Submitted to the SEC in July, the petitions already have received more than 15,000 comments, most favorable and many of them form letters.

One, closely watched effort by the SEC didn’t make the list and has collected surprisingly few comment letters. Corp Fin’s review of disclosure effectiveness has garnered a mere 20 comment letters thus far.

Mary Kay Scucci, managing director of the Securities Industry and Financial Markets Association, offered a variety of recommendations on the review: preserving Private Securities Litigation Reform Act safe harbors, collaborating with the Financial Accounting Standards Board to ensure an integrated set of disclosures “devoid of redundancies and nuanced differences,” and “a mechanism for timely update of disclosure requirements to cover new topical issues and to delete existing disclosures when the informational value for investors is diminished.”

Michael Young, representing the Committee on Financial Reporting, comprised of attorneys and auditors in the financial reporting community, pitched a unique approach to the problem that prescriptive rules can make it “exceedingly difficult to mandate effective communication through rulemaking,” leading to a “compliance mindset” that places technical conformity to the rules over effectiveness in communication.” His solution: The rule would require companies to provide an overview describing, in their own words, what happened at the company over the past year and expectations and concerns about the year to come.”

Gregg Nelson, vice president, accounting policy & financial reporting for IBM, asked the SEC to consider eliminating the prior year-in-review requirement in the Management Discussion and Analysis, and eliminating the two-year quarterly information table, including the stock price information.

Lauren Belot, director of accounting policy for PNC Financial Services Group, opined that “future-oriented information” belongs outside of audited financial statements. She added that the SEC and FASB should work together on disclosure reform and clearly define what footnotes and MD&A are intended to provide to the user. “We recommend they define the intended ‘user’ of the disclosures to avoid conflicting disclosure objectives, but also, most importantly, to avoid duplication or redundancy in disclosure requirements,” she wrote.