Remarks at the 2025 Institute for Corporate Counsel

Good afternoon and thank you Amy [Lally][1], for the kind words. I appreciate the opportunity to address the 2025 Institute for Corporate Counsel.[2] Its focus on the intersection of law, business, and politics is particularly timely. As our Chairman Paul Atkins has proclaimed earlier this year, it is a new day at the SEC and there have been changes in perspective on these three factors.

What has not changed, however, is the recognition that law, business, and politics impact our shared efforts to build and maintain strong capital markets. Economic growth, jobs creation, and innovation are powered by free enterprise and opportunity, which are not possible without investors being willing to supply risk capital.

Law underpins the Commission's authority to protect investors, to maintain fair, orderly, and efficient markets, and to facilitate capital formation. Business operates within this legal framework to provide goods and services demanded, and desired, by the public. Lastly, politics responds to the voting electorate and their general views on policies are reflected in the election of the President and members of Congress.

During the next several years, the Commission is expected to focus on crypto, encouraging more companies to go public, and facilitating more opportunities to invest in private markets. Today, I will focus on the second part of that agenda - encouraging more businesses to go, and stay, public by making it less onerous to be a public company.

Periodic Reporting Should be Reconsidered to Promote Effectiveness and Decrease Costs

Earlier this year, President Donald J. Trump, in a Truth Social post, expressed his view that public companies should have the option to move from reporting quarterly to semiannually.[3] President Trump observed that this would "save money, and allow managers to focus on properly running their companies."

As we seek to incentivize businesses to have IPOs, and increase the number of public companies, we should consider whether the current SEC reporting regime remains optimal. This exercise is not particularly novel. Other major capital markets have shifted their reporting periods specifically in order to minimize burdens and promote longer term thinking.[4] Even in the United States, foreign private issuers are not required to file quarterly reports, in contrast to the quarterly filing requirement that applies to domestic issuers.[5] The capital markets depend on the quality and integrity of the information provided by companies to investors. However, the channels for providing material information to market participants have grown significantly due to advances in technology and communications. The investing world simply does not wait with bated breadth for the filing of the next Form 10-Q with the SEC. Nearly twenty years ago, then-Chairman Chris Cox recognized the possibility that websites, including blogs, might be an appropriate method for distributing material corporate information without running afoul of Regulation FD.[6] Today, important information can be flashed instantaneously across the globe with little cost.

With respect to reporting frequency, this is an issue that we have struggled with over time. Currently, regulations require dissemination of financial and other information through quarterly filings made with the SEC. This was not always the case, however. For decades prior, the SEC did not mandate quarterly disclosures.[7]

There has been a longstanding debate over whether a short-term outlook harms long-term investment in companies.[8] Chairman Arthur Levitt referenced this debate in 1998, noting that "… we have got to break this pattern where short-term estimates rather than long-term results drive a company's stock. Wall Street needs to focus less on quarterly earnings and more on the long-term health and viability of a company. Don't settle for anything less … If we satisfy short-term needs at the expense of long-term values, we defy the very principle companies and our markets operate on - the efficient allocation of capital."[9]

In 2018, the SEC requested public comment on the disclosures that reporting companies must provide in their quarterly reports on Form 10-Q.[10] The Commission was interested in exploring ways to promote efficiency in periodic reporting by reducing unnecessary duplication in disclosure and how such changes could affect capital formation, while maintaining appropriate investor protection.[11]

Given the efforts to make public capital markets great again, it is appropriate to revisit this question. As some commentators have noted "frequent reporting can distort managerial incentives, leading to a prioritization of short-term accounting performance over long-term value creation."[12]

In this regard, the current Form 10-Q framework potentially captures two negative regulatory outcomes: first, the sheer cost to prepare a Form 10-Q every quarter; and, second, whether the disclosures contained in that filing substantially benefit price discovery for shareholders. It takes a significant amount of time and effort to prepare a Form 10-Q, particularly when there is personal civil and criminal liability under Sections 302 and 906 of the Sarbanes-Oxley Act. Thus, when preparing a Form 10-Q, do not forget that every company must have disclosure controls and procedures (DCPs) on mine safety, even if the company has never had any involvement in such activities. After all, DCPs are needed to confirm that the company did not have any reportable mine safety incidents during that quarter. Exactly how does that benefit investors?

The SEC estimates that Form 10-Qs average reporting burden per response to be a modest 135.13 hours.[13] It would not be surprising, however, if this figure vastly understates the actual burden.

Given the diversity of business models, it would be presumptuous to think that a single prescriptive regime perfectly fits each company. Shifting from quarterly to semiannually would provide more flexibility for companies to align the reporting period with the potential needs of their shareholder base, business cycle, and securities analyst coverage.

For companies with a multi-year development cycle, such as those who have a single product in the pipeline and no current revenue, shareholders may find quarterly financial information less relevant than disclosure on the progress towards development milestones. Even if no longer required to file on Form 10-Q, such companies would remain subject to current report filing obligations on Form 8-K for certain material events.

The experience of other jurisdictions can provide useful case studies as to whether shifting to semiannual reporting would have a negative impact on our capital markets. As one study noted, "[w]hen quarterly reporting was no longer required of U.K. companies in 2014, less than 10% stopped issuing quarterly reports (as of the end of 2015) … [t]here was no statistically significant difference between the levels of corporate investment of the UK companies that stopped quarterly reporting and those that continued quarterly reporting."[14]

In 2013, the European Union abolished the requirement to publish the quarterly report, known as the interim management statement (IMS). The E.U., noted that the IMSs were a burden for small and medium-sized issuers without being necessary for investor protection.[15] Furthermore, "the IMSs were thought to encourage a focus on short-term performance and discourage long-term investment."[16]

Let's not confuse omitting the Form 10-Q for the first and third quarters with the absence of any information to the market. Even if a company adopted a semi-annual reporting schedule, they could still report earnings and other information on a quarterly basis on Form 8-K.

The financial markets tend to react to quarterly earnings information distributed in earnings releases and analyst calls, all of which are subject to the antifraud provisions of the federal securities laws. There tends to be far less reaction to the Form 10-Q disclosures, which often come several weeks later. This raises questions about the marginal informational value provided by the Form 10-Q. Some of the information, like material changes to risk factors, unregistered sales of equity securities, and defaults upon senior securities - and the aforementioned mine safety disclosures - may be better suited to disclosure elsewhere.[17]

The fundamental question is whether the costs and burdens associated with the preparation of quarterly Form 10-Q filings provide corresponding levels of benefits to shareholders and the financial markets. Regulators should be open to change rather than have a reflexive instinct to maintain existing frameworks.

Our Rulebook Should Promote Transparent Clarity, Not Complex Secrecy

Additionally, where the Commission can promote transparency behind its thinking, then it should do so. There are many aspects to its regulatory framework where such transparency is not forthcoming. One example is shareholder proposals under Rule 14a-8,[18] where most of the analysis is documented in internal memoranda that only Commission staff and former staff have seen.[19] Our rulebook should not be based on secret internal writings or codes; while such secrecy might have entertainment value such as when watching Nicholas Cage in National Treasure,[20] it is inconsistent with a transparent regulatory framework. Deciphering our rules should not be akin to solving complex cryptographic puzzles. Instead, our rules and policies should be stated clearly and openly. (That being said, I thoroughly enjoyed having possession of the mythical SEC Chairmen's Book of Secrets during the three months that I served as acting chairman.)[21]

The need for transparency is also reflected in the Commission's recent decision to articulate its policies regarding the acceleration of effectiveness of registration statements with mandatory arbitration provisions (the "Policy Statement").[22] For years, many operated under the assumption that mandatory arbitration provisions were not permissible in registration statements. However, such a regulation or formal policy has never been adopted by the Commission.

Describing the Policy Statement as a reversal of the Commission's previous position is inaccurate and misleading as the Commission has never adopted a policy in this regard. For that reason, critics of the Policy Statement cannot point to any prior Commission or staff policy statements. Rather, prior practice was for Commission staff to inform registrants that without Commission guidance, which could take weeks, if not months, to obtain, the staff would not use its delegated authority to accelerate the effectiveness of registration statements if there was a mandatory arbitration provision. One should not be surprised that registrants have opted to remove those provisions rather than undergo the potentially time consuming process of obtaining a Commission policy position. From a practical standpoint, this approach operated as a de facto ban on mandatory arbitration provisions. I think this is wrong: policies should be stated clearly and not be cloaked. The Policy Statement now achieves that objective.

Critics point to the public interest standard contained in the federal securities laws as a reason to prohibit the inclusion of mandatory arbitration provisions. However, the case law cited in the Policy Statement fully supports the Commission's approach. As the Policy Statement observes, "nothing in the text of the anti-waiver provisions or any other provisions of the Federal securities statutes could be construed as a clearly expressed congressional intention that the Arbitration Act would not apply to Federal securities laws claims."[23]

The public interest and investor protection requirements of Section 8(a) of the Securities Act cannot form the basis for a backdoor merit review standard. As the Policy Statement notes: "Courts have considered the scope of the public interest and investor protection standard in the context of the Federal securities laws and determined that, when applying this standard, it is only permissible to consider those matters over which the Commission has authority under the Federal securities laws."[24] The Policy Statement concludes that "[b]ecause the Federal securities statutes do not override the Arbitration Act when applied to arbitration provisions, the existence of such a provision is not within the ambit of appropriate considerations under Section 8(a)'s public interest and investor protection standard…"[25]

Taking a contrary position would run afoul of the overwhelming weight of judicial precedent, run counter to a common sense interpretation, and would open the registration statement review process to a subjective merit review standard. Should the public interest standard be used to deny acceleration to companies involved in mining, fossil fuels, artificial intelligence, or fast-fashion? Should acceleration of registration statements be denied because a company takes stances on controversial political issues deemed counter to the "public interest" by the powers that be? Should excessive performance-based compensation for corporate executives be viewed as against the public interest because some say it increases wealth disparity? Who would define what is the "public interest"? Would there be any limiting principle? The list of potentially subjective "public interest" criteria for denying acceleration would be never ending and in perpetual flux. Congress could have adopted a merit review standard during the passage of the Securities Act, but it did not and, instead, adopted a framework based on disclosure of material information.

In short, the Policy Statement addresses a specific issue that has been left unaddressed for decades and articulates clear views on how the Commission and its staff will administer this particular statutory provision.

Unaccountable and Concentrated Proxy Voting Power

Lastly, we should ensure that market participants comply with statutory and SEC requirements to disseminate information when they are acting in a coordinated manner. This activity includes coordinated proxy voting, which can occur through the efforts of proxy voting advisory businesses (PVAB) to recommend particular policy choices to funds and asset managers. In 2021, Commissioner Elad Roisman noted that "they can influence the outcome of a variety of matters that companies submit to a shareholder vote."[26]

With regard to proxy voting, practices that directly or indirectly result in coordinated voting should be evaluated with respect to compliance with reporting requirements under the Securities Exchange Act. Shareholders form a group if they act together for the purpose of voting the equity securities of an issuer. Depending on the facts and circumstances, funds and asset managers using PVABs for voting decisions may have formed a group for purposes of Section 13(d)(3) or Section 13(g)(3) of the Securities Exchange Act.[27] Indeed, the Commission itself raised this issue in 2020 when it stated that "[u]se of a proxy voting advice business by investors as a vehicle for the purpose of coordinating their voting decisions regarding an issuers' securities" would raise issues under the SEC's beneficial ownership rules.[28] Of course, a group is not formed simply because a shareholder independently determined how it wants to vote on an issue, announced its voting decision, or advised others on how it intended to vote.[29] The key is that the vote is based on an independent decision by the shareholder itself. If, in lieu of such independent decision-making, funds and asset managers automatically vote shares solely based on PVAB recommendation regarding shareholder proposals that have the purpose or effect of influencing control over the company and the aggregated voting power of such persons exceeds 5% beneficial ownership, such persons may have formed a group and need to file a Schedule 13D even if they beneficially own less than 5% on an individual basis.

To the extent that funds and asset managers are engaging in "robo-voting" based on PVAB recommendations, such practices should be reviewed to determine whether they comply with the Exchange Act and SEC rules. The evaluation of whether a group has been formed should take into account the business realities of the arrangements, particularly if robo-voting results in coordination of voting practices where owners of the same securities vote in tandem with each other with the effect of influencing control of an issuer. The substance of such arrangements has implications under Section 13(d) of the Exchange Act and we should not shy away from scrutinizing such consequences.

Thank you for your attention today and future engagement on these important topics. I welcome questions.