S-K Modernization Rule Takes Effect November 9th

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SEC goes public with first significant changes to business-description disclosures in 30 years

On Monday, November 9, 2020, the SEC’s rule for modernizing Regulation S-K Items 101, 103, and 105 goes into effect. This rule is designed to modernize the description of business, legal proceedings, and risk factors in 10-Ks, 10-Qs, and registration statements.

With this modernization of Rule S-K, the SEC is shifting to a “principles-based” disclosure regime. In practice, points out Wachtell, Lipton, Rosen & Katz, this means that there will be fewer line-item disclosure requirements; instead, each registrant will tailor disclosure to its own unique circumstances. “Disclosure decisions in response to the amendments,” writes Wachtell, “will require experience and judgment to evaluate the circumstances of each registrant and craft appropriate responsive disclosure.”

Among the important changes that this new rule will usher in is a requirement that companies disclose how they are managing human capital—an issue that SEC Commissioner Caroline Crenshaw has noted is central to “a modern company’s long-term sustainability” as evidenced by the current COVID-19 crisis.

Wachtell notes that while each company should focus on the human capital measures and objectives that it actually uses to manage the business, the following are some examples of broad categories in which companies are already making human-capital disclosures:

  • Workforce diversity—the percentage of women and/or people of color in leadership positions.
  • Workforce compensation--pay ratios for gender and for diverse and non-diverse employees.
  • Workforce health and safety—recordable injury rates or the numbers of employees who participate in certain health and wellness programs.
  • Workforce skills and capabilities—amount of money or employee hours invested in training programs, etc.
  • Workforce stability—employee engagement scores and turnover rates for categories of employees.

For more information, please see DFIN’s earlier post, Disclosing Human Capital Becomes an SEC Mandate.

In addition, please see Wachtell’s, The New SEC Regulation S-K Rules: Practical Advice for Companies.

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